KluwerArbitration

Document information Acknowledgements

I am grateful to many people who contributed in different ways to the completion of this
Publication book. It is a slightly revised version of the habilitation thesis which was accepted by the
Force Majeure and University of Berne, Faculty of Law in late 2007. I am deeply indebted to Professor
Hardship under General Wolfgang Wiegand who rendered the first expert opinion and who has always been a great
Contract Principles: source of motivation and inspiration for my academic work. I am also particularly
Exemption for Non- grateful to Professor Daniel Girsberger who prepared the second expert opinion.
performance in I am deeply indebted to the Holderbank Foundation and the Swiss National Foundation
International Arbitration for having granted me a fellowship for this project in 2001 and 2003, respectively. While
the major part of this project was financed through my professional activities, this was
only possible due to my position as Counsel to the law firm of Python & Peter which I hold
Bibliographic reference since 2001.
'Acknowledgements', in Dr. Wolfgang Peter, senior partner of Python & Peter, has always supported and
Christoph Brunner , Force encouraged my academic efforts, without, however, failing to open and sharpen my mind
Majeure and Hardship to the practical aspects of international commercial arbitration.
under General Contract I would like to thank Professor Herbert Kronke, Secretary-General of UNIDROIT, for giving
Principles: Exemption for valuable suggestions during a meeting in Rome at the initial stage of this study. A special
Non-performance in thanks goes to Professor Thomas Koller, who also encouraged me to explore the subject
International Arbitration, matter of the book at the very beginning of the project.
International Arbitration
Law Library, Volume 18 Finally, I am greatly indebted to my colleagues and, last but not least, to my family for
(© Kluwer Law their indispensable support.
International; Kluwer Law Christoph Brunner
International 2008) pp. xxi
- xxii Berne
P xxi September 2008

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Document information List of Abbreviations
1978 Draft 1978 Draft Convention on Contracts for the International Sale of
Publication Goods approved by the United Nations Commission on International
Force Majeure and Trade (on which the Secretariat Commentary was prepared), IX YB 11
Hardship under General ff., 14-21 (1978), Pace Database
Contract Principles: A. Atlantic Reporter
Exemption for Non-
performance in AC Advisory Council
International Arbitration A.C. Appeal Cases
A.D. New York Supreme Court Appellate Division Reports
Bibliographic reference AAA American Arbitration Association
'List of Abbreviations', in AAA Rules International Arbitration Rules of the American Arbitration
Christoph Brunner , Force Association
Majeure and Hardship
under General Contract ABGB Allgemeines Bürgerliches Gesetzbuch (Austrian Civil Code)
Principles: Exemption for AcP Archiv für die civilistische Praxis
Non-performance in
International Arbitration, AJIL American Journal of International Law
International Arbitration AJP Aktuelle Juristische Praxis
Law Library, Volume 18
(© Kluwer Law Alaska Alaska Supreme Court
International; Kluwer Law ALI American Law Institute
International 2008) pp.
xxiii - xxxii All E.R. All England Reports
Am. J. Comp. L. American Journal of Comparative Law
Am. Rev. Int'l Arb. American Review of International Arbitration
App. Div. Appellate Division Reports
Arb. Int. Arbitration International (London Court of International Arbitration,
LCIA)
Art. Article
Arts Articles
ASA Association Suisse de l'Arbitrage (Swiss Arbitration Association)
ASA Bull. Bulletin of the Swiss Arbitration Association
ATF Arrêts du Tribunal fédéral (decisions of the Swiss Federal Tribunal,
official reporter)
AWD Aussenwirtschaftsdienst (former name of the journal ‘Recht der
Internationalen Wirtschaft’
BB Der Betriebs-Berater
BBl. Bundesblatt – Swiss Law Gazette
Bd. Band – Volume
BGB Bürgerliches Gesetzbuch (German Civil Code), as amended by the Act
to Modernise the Law of Obligations
(Schuldrechtsmodernisierungsgesetz) which entered into force on 1
January 2002
BGBl. Bundesgesetzblatt (German Law Gazette)
BGE Entscheidungen des Bundesgerichts (decisions of the Swiss Federal
Tribunal, official reporter)
BGH Bundesgerichtshof – German Federal Supreme Court
BGHZ Entscheidungen des Bundesgerichtshofs in Zivilsachen (decisions of
the German Federal Court in civil law matters)
BIT Bilateral Investment Treaty
BJM Basler Juristische Mitteilungen
Build. L.R. Building Law Reports
Bull. Bulletin
C.L.R. Commonwealth Law Reports
C.T.R. Iran – United States Claims Tribunal Reports
Cal. California

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 Cal. App. 2d California Appellate Reports, Second Series
Cal. Rptr. California Reporter
Cass. civ. 1re Cour de cassation, Première chambre civile
CC Code civil suisse (Swiss Civil Code)
CCit Italian Codice Civile
CENTRAL Center for Transnational Law
Cf. compare
CFR Cost and Freight
Ch. chapter
CIF Cost, Insurance and Freight
CIP Carriage and Insurance Paid To
Cir. U.S. Circuit Court
CISG United Nations Convention on Contracts for the International Sale of
Goods
CISG-online Database [Link], Schwenzer, Ingeborg (ed.), Cases, Materials,
Legal Texts, <[Link]
Clunet Journal du Droit International (J.D.I.)
CO Swiss Code of Obligations (Code des obligations suisse,
Schweizerisches Obligationenrecht)
Co. Company
Code civil French Civil Code
Collection of ICC Collection of ICC Arbitral Awards I-IV: Vol. I 1974-1985 (Jarvin/Derains
Awards (eds), ICC Publ. No. 433); Vol. II 1986-1990 (Jarvin/Derains/Arnaldez
(eds), ICC Publ. No. 514, 1994); Vol. III 1991-1995
(Arnaldez/Derains/Hascher (eds), ICC Publ. No. 553, 1997); Vol. IV 1996-
2000 (Arnaldez/Derains/Hascher (eds), ICC Publ. No. 553, 2003)
Colo. App. Colorado Court of Appeals
Colum. L. Rev. Columbia Law Review
COM Working Documents of the European Commission
Concordat Swiss Intercantonal Concordat on Arbitration
Contract Code Contract Code Drawn upon on behalf of the English Law Commission
Corp. Corporation
CPT Carriage Paid To
Ct. Cl. Court of Claims
DAF Delivered At Frontier
D. Del. District of Delaware
D.C. District of Columbia
D.C. Cir. District of Colombia Court of Appeals Cases
D.P. Dalloz periodique
DB Der Betrieb
DDP Delivered Duty Paid
DDU Delivered Duty Unpaid
DDR (ehemalige) Deutsche Demokratische Republik (former German
Democratic Republic)
Del. Delaware Supreme Court
DEQ Delivered Ex Quay
DES Delivered Ex Ship
Dig. Digest(s)
DIS Deutsche Institution für Schiedsgerichtsbarkeit (German Institution
for Arbitration)
Diss. Dissertation (dissertation, doctoral thesis)
Draft Digest 2004 See in the Bibliography under Ferrari/Flechtner/Brand (eds)

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 E.C.R. Report of Cases Before the Court of Justice of the European
Communities
E.D. La. Eastern District of Louisiana
E.D. Mo. Eastern District of Missouri
E.D. Pa. Eastern District of Pennsylvania
E.D. Va. Eastern District of Virginia
e.g. for example
EC European Community
ECE United Nations Economic Commission for Europe
ECJ European Court of Justice
ECJ Rep. EJC Reporter
ed. editor
edn Edition
eds editors
EEC Treaty Treaty establishing the European Economic Community
Einl. Einleitung
EJCL Electronic Journal of Comparative Law (<[Link]
[Link]. English Reports
et al. and other
et seq. and following
EU European Union
EWCA Civ Court of Appeal (Civil Division) (England & Wales)
EXW Ex Works
F. Federal Reporter
F. 2nd, F.2d Federal Reporter, Second Series
FAS Free Alongside Ship
FCA Free Carrier
FOB Free On Board
[Link]. Federal Supplement
[Link]. 2nd Federal Supplement, Second Series
ff. and following
FIDIC Fédération Internationale des Ingenieurs Conseils (International
Federation of Consulting Engineers) (see also FIDIC Standard Forms of
Contract)
FIDIC Standard In September 1999, FIDIC published four new standard forms of
Forms of contract documents (First Editions 1999): (1) The Short Form of
Contract (or FIDIC Contract, recommended for a small contracts; (2) the Conditions of
Conditions of Contract for Construction, recommended for building or engineering
Contract) works where most of the design is provided by the Employer; (3)
Conditions of Contract for Plant and Design-Build, recommended for
the provision of electrical and/or mechanical plant, and for the
design and execution of building or engineering works; (4) Conditions
of Contract for EPC (“Engineer – Procure – Construct”)/Turnkey
Projects, recommended for the provision on a turnkey basis of a
process or power plant, of a factory or similar facility, or of an
infrastructure project or other type of development
FS Festschrift (memorial publication, publication in honour of)
Geneva Draft UNCITRAL Working Group's Draft, 7th Session (Geneva, 5-16 January
1976 1976), VII YB 89-96 (1976)
GmbH Gesellschaft mit beschränkter Haftung (Public Limited Company)
H.L. House of Lords
Harv. L. Rev. Harvard Law Review
Hastings L.J. Hastings Law Journal
HGB Handelsgesetzbuch (German Commercial Code)

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 Hoge Raad Supreme Court of the Netherlands
I.L.R. International Law Reports
IBA International Bar Association
IBA Rules IBA Rules on the Taking of Evidence in International Commercial
Arbitration adopted on 1 June 1999
IBLJ International Business Law Journal
ICC International Chamber of Commerce
ICC Bull. ICC International Court of Arbitration Bulletin
ICC Court International Court of Arbitration of the International Chamber of
Commerce
ICC Publ. ICC Publications
ICC Rules Rules of Arbitration of the ICC International Court of Arbitration in
force as from 1 January 1998
ICCA International Council for Commercial Arbitration
ICJ International Court of Justice
ICJ Rep. International Court of Justice Reporter
ICLQ International & Comparative Law Quarterly
ICSID International Center for the Settlement of Investment Disputes
id. ibidem (in the same place, see above; reference to the book,
chapter, article, or page cited just before)
IECL International Encyclopaedia of Comparative Law
IJBL International Business Law Journal
ILA International Law Association
ILC International Law Commission
Ill. App. Illinois Appellate Court Reports
ILM International Legal Materials
ILR International Law Report
IMF International Monetary Fund
Inc. Incorporated
Incoterms International Commercial Terms of the ICC (versions of 1936, 1953,
1974, 1980, 1990, 2000) (version of 2000, ICC Publ. No. 560)
Int. Rev. Law & International Review of Law and Economics
Econ.
Int'l International
Int'l & Comp. L.Q. The International & Comparative Law Quarterly
Int'l Rev. L. & International Review of Law and Economics
Econ.
IPRax Praxis des Internationalen Privat- und Verfahrensrechts
J. Journal
J. Chinese L. Journal of Chinese Law
J. Legal Stud. Journal of Legal Studies
J.D.I Journal du Droit International
J. Int. Arb. Journal of International Arbitration
J. Int'l L. & Pol. Journal of International Law and Policy
J.L. & Com. Journal of Law and Commerce
[Link]. Jahrbuch Junger Zivilrechtswissenschaftler
JdT Journal des Tribunaux
JuS Juristische Schulung
JW Juristische Wochenschrift
JZ Juristenzeitung
K.B. Law Reports, King's Bench

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 Kan. Kansas Reports
L. Law
L.J.K.B. Law Journal Reports, King's Bench New Series
L.R. Law Reports
L.R. 2 C.P. English Law Reports, Common Pleas Cases
L/C Letter of Credit
La. App. Louisiana Court of Appeal
LCIA London Court of International Arbitration
LCIA Rules Arbitration Rules of the LCIA effective as of 1 January 1998
LG Landgericht
LIBOR London Inter Bank Offering Rate
lit. litera
[Link]. Lloyd's List Law Reports
Lloyd's L. Rep. Lloyd's Law Report
Lloyd's Rep. Lloyd's List Law Reports
Ltd. Limited
Mass. Massachusetts Reports
Md. Maryland Reports, Maryland Court of Appeals
MDR Monatsschrift für Deutsches Recht
Minn. Minnesota Supreme Court; Minnesota Reports
Minn. App. Minnesota Court of Appeals
Mo. App. Missouri Appeal Reports; Missouri Court of Appeals
Mod. L. Rev. Modern Law Review
n. Footnote
N.D. Cal. Northern District of California
N.D.N.Y. Northern District of New York
N.E.2d North Eastern Reporter, Second Series
N.W. North Western Reporter
N.Y. New York Reports; New York Court of Appeals
N.Y.S.2d New York Supplement, Second Series
NBW Nieuw Burgerlijk Wetboek (New Dutch Civil Code)
NCCUSL National Conference of Commissioners on Uniform Law
NCPC Nouveau Code de Procédure Civile (New French Civil Procedure
Code)
Nev. Nevada Supreme Court
NJW Neue Juristische Wochenschrift
NJW-RR NJW-Rechtsprechungs-Report
No. number
NY New York
NY Convention New York Convention of 10 June 1958 on the Recognition and
(New York Enforcement of Foreign Arbitral Awards
Convention)
O.R. Official Records, in United Nations Conference on Contracts for the
International Sale of Goods, Vienna 10 March - 11 April 1980,
Documents of the Conference and Summary Records of the Plenary
Meetings and the Meetings of the Main Committees, New York, United
Nations, 1981
OECD Organisation for Economic Cooperation and Development
OGH Oberster Gerichtshof (Austrian Federal Suprempe Court)
OJ Official Journal of the European Communities / Union
OLG Oberlandesgericht (higher regional court in Germany)

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 OR Obligationenrecht (Swiss Law of Obligations)
OR AT Obligationenrecht Allgemeiner Teil
Or. Oregon Supreme Court
P. Pacific Reporter
p. page
P.2d Pacific Reporter, Second Series
P.C.I.J. Permanent Court of International Justice
Pa. Pennsylvania
Pace Database Pace database on the CISG and International Commercial Law, Pace
Law School Institute of International Commercial Law, Kritzer, Albert
(ed.), <[Link]
Pace Int'l L. Rev. Pace International Law Review
para. paragraph
paras paragraphs
PECL Principles of European Contract Law
PILS Swiss Federal Statute on Private International Law of 18 December
1987 (Bundesgesetz über das Internationale Privatrecht)
pp. pages
Publ. Publication
Q.B. Law Reports, Queen's Bench (3rd Series)
RabelsZ Rabels Zeitschrift für ausländisches und internationals Privatrecht
RDAI Revue de droit et affaires internationales (International Business Law
Journal, IJBL)
recht recht, Zeitschrift für juristische Ausbildung und Praxis
Rev. Review or revue
Rev. arb. Revue de l'arbitrage
Rev. dr. unif. Revue de droit uniforme (Uniform Law Review)
RG Reichsgericht (Germany)
RGZ Entscheidungen des Reichsgerichts in Zivilsachen
RIW Recht der Internationalen Wirtschaft
Rome EC Convention on the Law Applicable to Contractual Obligations
Convention (Rome 1980)
S. Ct. Supreme Court Reporter
S.D. Fla. Southern District of Florida
S.D.N.Y. Southern District of New York
S.E. South Eastern Reporter
S.W. South Western Reporter
SA Société Anonyme
s. section
Sem. Jud. La Semaine Judiciaire
sent. sentence
SJZ Schweizerische Juristen-Zeitung
So.2d Southern Reporter, Second Series
Supp. Supplement
Swiss Rules Swiss Rules of International Arbitration in force as of 1 January 2004
SZW Schweizerische Zeitschrift für Wirtschaftsrecht
TLDB Transnational Law Digest & Bibliography, developed and operated
by the Center for Transnational Law (CENTRAL), University of Cologne,
Germany, at <[Link]
TLDB DocID TLDB document identification number (as indicated in the blue bar
at the top of each document)

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 TLDB-Principles CENTRAL List of lex mercatoria principles, rules and standards, at
<[Link]
TranspR Transportrecht
Tul. J. Int'l Comp. Tulane Journal of International & Comparative Law
L.
Tul. L. Rev. Tulane Law Review
U. Chic. L. Rev. University of Chicago Law Review
U. Pitt. L. Rev. University of Pittsburgh Law Review
U.C.C. [Link]. Uniform Commercial Code Reporting Service
U.S. United States or United States Reports
UCC Uniform Commercial Code
UCP ICC Uniform Customs and Practice for Documentary Credits
ULF Uniform Law on the Formation of Contracts for the International Sale
of Goods
ULIS Uniform Law for the International Sale of Goods
UN United Nations
UN Doc. United Nations Document
UN Res. United Nations Resolution
UNCITRAL United Nations Commission on International Trade Law
UNCITRAL Model UNCITRAL Model Law on International Commercial Arbitration as
Law adopted on 21 June 1985
UNCITRAL Rules UNCITRAL Arbitration Rules adopted on 15 December 1976
UNIDROIT Insitut International pour l'Unification du Droit (International
Institute for the Unification of Private Law, Rome/Italy)
UNIDROIT UNIDROIT Principles of International Commercial Contracts
Principles
Unif. L. Rev. Uniform Law Review/Revue de droit uniforme, published by the
International Institute for the Unification of Private Law (UNIDROIT),
Rome/Italy
UNILEX Database of international case law and bibliography on the United
Nations Convention on Contracts for the International Sale of Goods
(CISG) and on the UNIDROIT Principles of International Commercial
Contracts by the Centre for Comparative and Foreign Law Studies,
Bonell, Michael Joachim (ed.), <[Link]
UPICC UNIDROIT Principles of International Commercial Contracts
v. versus
Va. J. Int'l L. Virginia Journal of International Law
Vand. J. Vanderbilt Journal of Transnational Law
Transnat'l L.
Vienna Draft 1977 UNCITRAL Draft, 10th Plenary Session (Vienna, 23 May-17 June 1977),
VIII YB 15-21 (1977)
Vol. Volume
W.D. Pa. Western District of Pennsylvania
W.D.N.Y. Western District of New York
W.L.R Weekly Law Reports
W.L.R. Weekly Law Reports
W.N. Weekly Notes of Cases
w/o without
Wash. App. Washington Appellate Reports; Washington Court of Appeals
wbl Wirtschaftsrechtliche Blätter, Zeitschrift für österreichisches und
europäisches Wirtschaftsrecht (Wien)
WHO World Health Organization
WiB Wirtschaftsrrechtliche Beratung
WIPO World Intellectual Property Organization

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 WIPO Rules WIPO Arbitration Rules, effective from 1 October 2002
Wis. Wisconsin
WM Wertpapier Mitteilungen
Y.B. Com. Arb. Yearbook Commercial Arbitration
YB UNCITRAL Yearbook, New York (United Nations Publication, 1971 ff.)
ZBJV Zeitschrift des Bernischen Juristenvereins
ZEuP Zeitschrift für Europäisches Privatrecht
ZfRV Zeitschrift für Rechtsvergleichung, internationales Privatrecht und
Europarecht
ZGB Zivilgesetzbuch (Swiss Civil Code)
ZGS Zeitschrift für das gesamte Schuldrecht
ZHR Zeitschrift für das gesamte Handelsrecht und Wirtschaftsrecht
ZIP Zeitschrift für Wirtschaftsrecht
ZPO Zivilprozessordnung (German Code of Civil Procedure)
ZR Blätter für Zürcherische Rechtsprechung
ZSR Zeitschrift für schweizerisches Recht
ZVglRWiss. Zeitschrift für Vergleichende Rechtswissenschaft
ZZP Zeitschrift für Zivilprozess
ZZPInt Zeitschrift für Zivilprozess International
P xxxii

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Document information Chapter 1: Introduction, Section 1: Force Majeure and
Hardship in International Commercial Transactions
Publication
Force Majeure and
I The Need for Transnational Instead of Domestic Rules in the Context of
Hardship under General International Commercial Transactions
Contract Principles: It has long been a highly disputed issue in international commercial arbitration whether
Exemption for Non- a party to a contract may be exempted for non-performance, whether it be on grounds of
performance in force majeure, hardship, frustration or a similar defence available under the applicable
International Arbitration substantive law. Indeed, in the case of international commercial transactions, the
probability that unforeseen events affecting the performance of a party will arise is much
higher than in the case of ‘internal contracts’, where both parties are subject to the same
Bibliographic reference domestic legal and economic order. (1) This is so because the performance of transborder
contracts involves additional risks, and the legal and political framework of international
'Chapter 1: Introduction, commercial contracts is generally less stable than that of internal contracts.
Section 1: Force Majeure
and Hardship in It is generally acknowledged that the principle of pacta sunt servanda (sanctity of
International Commercial contracts), meaning that contracts should prima facie be enforced according to their
Transactions', in Christoph terms, may have to be qualified by exemptions such as force majeure, frustration, rebus
Brunner , Force Majeure sic stantibus or hardship. In his seminal article on the lex mercatoria of 1987, Lord Mustill
and Hardship under stated that ‘the interaction of the principle [pacta sunt servanda] and the exception[s]
General Contract has yet to be fully worked out’, and that ‘the very guarded nature of this proposition is
Principles: Exemption for P 2 demanded by the uncertain state of the authorities’. (2) He further noted that ‘[i]n any
Non-performance in developed legal system this is a troublesome topic, but in the lex mercatoria it seems to
International Arbitration, be particularly difficult’. (3)
International Arbitration In the meantime, the interaction between the principle of pacta sunt servanda and its
Law Library, Volume 18 exceptions has been specifically addressed by significant private ‘soft law’ codifications
(© Kluwer Law of contract law principles, (4) especially the UNIDROIT Principles of International
International; Kluwer Law Commercial Contracts (the ‘UNIDROIT Contract Principles’ or ‘UPICC’ (5) ) and the
International 2008) pp. 1 - 9 Principles of European Contract Law (PECL). The publication of the UPICC in 1994, (6) and
one year later of the PECL, (7) reflected a marked shift away from formal rule-making by
international formulating agencies to more flexible private codification efforts. (8) As a
P 3 result of these transnational codifications by non-legislative means, the unification of
contract law is ‘privatized’ through restatement-like sets of principles, issued by private
working groups of specialized practitioners and academics. (9) Drafting ‘principles’ or
‘black letter rules’, rather than a uniform model law or a convention, which tend to be
fragmentary in character or risk remaining dead letters, has significant benefits: there is
a wider discretion in their preparation, and they are more flexible and capable of rapid
adaptation to the changing conditions in international trade practice in the future. (10) In
the same vein, the sale of goods aside, contract law has always seemed to the common
law world too easily changeable to be amenable to binding codification. (11)
These international restatements of contract law were profoundly influenced by the 1980
United Nations Convention on Contracts for the International Sale of Goods (CISG). The
CISG has given the principle of pacta sunt servanda and its limitations a certain
framework. (12) Furthermore, some national laws have recently been adapted to reflect,
among other things, modern trends regarding the issue of exemption for non-
performance (e.g., German law). Many legal writers have addressed non-performance
either from the perspective of comparative law or a particular national law.
Exemptions for non-performance have been dealt with in a significant number of arbitral
awards. The defence of force majeure is often litigated in international arbitration. (13)
Craig, Park and Paulsson have noted: (14)
ICC awards dealing with force majeure illustrate the way that the repeated use
of certain analytical criteria in arbitral awards may create a recognized
standard of international business behavior that is conducive to establishing
authoritative customary rules of lex mercatoria.
In international transactions it is often appropriate to examine the force majeure and
P 4 hardship defences in light of generally accepted contract principles and international
(arbitral) case law to the extent that this appears to be possible under the applicable
law. It has been stated: (15)
National laws often give the judge (and by extension the arbitrator who may
be applying them) wide powers to interpret contractual provisions and to
apply them to the fact pattern at hand. When an international arbitrator
exercises that authority, for example (…) to determine whether an alleged
event of force majeure was truly unavoidable, he does so (in conformity with
whatever national law may be relevant) in the light of all the circumstances.
When those circumstances pertain to an international transaction, involving
foreign states, foreign laws, foreign languages, and foreign currencies – not to
mention foreigners – a type of jurisprudence is generated, by repeated
decisions dealing with similar transnational fact patterns, which by definition
cannot be derived from a purely national context.

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 The adoption of the terms ‘force majeure’ and ‘hardship’ in transnational legal
instruments such as the UPICC was based on their wide application and the general
awareness of their meaning in international business circles and contract practice, as
confirmed by the inclusion in many international contracts of force majeure and hardship
clauses. The intention was also to disconnect these terms from national legal systems.
(16)
The present treatise is an attempt to shed further light on the scope and content of the
principles of exemption for non-performance commonly referred to as ‘force majeure’
and ‘hardship’. It addresses the topic under ‘general contract principles’ (general
principles of law approach) (17) for the following reasons.
The first reason may be described by the notion of the specificity of international
commercial contracts and international arbitration. International business transactions
by definition have connecting factors with more than one legal system, and the selection
of a particular national law as governing substantive law may not adequately conform to
the parties' expectations. National laws are often ill-adapted to the regulatory needs of
international trade and are in many cases antiquated. Yet the parties will generally
expect their business transaction to be governed by rules discerned for international
commerce, avoiding the trap created when the otherwise applicable national law
appears uncertain, peculiar, dramatically amended since the date of the contract, or
otherwise unpredictable and unjust in its application to foreigners. (18)
P5
The general principles of law address this concern. This approach has been described as
‘a valuable support for arbitrators as it may contribute to their arriving at decisions,
generally acceptable and understood by the business world at large’. (19) For that reason,
‘[g]eneral principles of law increasingly play a role in international commercial
contracts’. (20) While they may also play a role in contract negotiations and contract
drafting, their significance is particularly pronounced in the field of international
arbitration. (21) By the same token, arbitral tribunals have profoundly affected the
progressive development of comparative law. (22)
The general principles of law approach is basically one of comparative law which,
especially if laid down in concrete sets of rules such as the CISG or the UPICC, leads to a
unification of law. For the international business community, unified law is of particular
interest, as it is by definition devoid of any particularities of national laws. The practical
import of the general principles of law approach has been significantly advanced by the
UPICC. They have been very well received in international arbitration. On the one hand,
this is due to the fact that international arbitral tribunals show a natural favourable
tendency towards comparative decision-making. This is a basic prerequisite for the
concept of transnational commercial law. (23) On the other hand, the soft law
codifications are an easily accessible tool for comparative decision-making. The UPICC
allow the parties and arbitrators ‘to make a reference to a set of neutral, workable and
concrete principles and rules just if they were making reference to their domestic code
instead of a vague and abstract notion of transnationalism with which many parties or
arbitrators would not feel comfortable’. (24) As a result, the comparative law approach
has become much more than a purely academic subject and has turned out to be
eminently practical in nature.
The question which then arises is, at which point and to what extent is one to suppose
that a contractual relationship has left the exclusive dominion of a national system, to
fall at least to some extent under a transnational one? (25) The present treatise also
deals with the scope of application of general contract principles, because it is essential
for a proper understanding of the practical relevance of the treatment of force majeure
and hardship under general contract principles. (26)
P6
In sum, there are numerous economic and geo-political factors and interrelated legal
developments responsible for the increasing significance of transnational law. (27) The
phenomenon of de-nationalization of the legal process is, of course, also furthered by the
steadily increasing harmonization and coordination efforts of the various international
agencies and institutions. (28) Apart from the traditional unification instruments, such as
international conventions and model laws, the idea of unification of the law by non-
legislative means has both altered and accelerated the harmonization process in
international trade and commerce. In light of recent developments regarding the CISG,
where courts are increasingly inclined to refer to the case law of other jurisdictions, it
may be expected that lawyers involved in multi-jurisdictional practice will increasingly
accept that one's own legal system is just one among several systems, and that there are
no a priori reasons to believe it should be preferred. (29) Such an attitude will naturally
contribute to a growing significance of comparative law. By the same token, the
traditional reluctance of state courts towards comparative methodology is beginning to
disappear. As noted by Lord Goff in 1997: (30) ‘Comparative law may have been the hobby
of yesterday, but it is destined to become the science of tomorrow. We must welcome
rather than fear its influence.’

II The Need for Predictable Rules

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 It is generally understood that international businessmen require some certainty and
predictability in the law. It is also widely acknowledged that the existence of different
national rules adds to the complexity of international transactions and thereby tends to
undermine the legal certainty and predictability that international merchants desire. (31)
Uniform law in general, and the general principles of law method in particular, address
this concern. However, practitioners will of course only be inclined to apply general
contract principles if they are well-established, readily accessible, sufficiently detailed
and predictable.
The need for predictable standards is obvious and at the same time difficult to achieve.
The main criticism of the lex mercatoria has always been the lack of content of the
relevant rules. Similarly, the task of determining general legal principles based on a
comparative legal analysis and of rendering a decision accordingly has traditionally
P 7 been considered to be both a very insecure (32) and an overly burdensome method.
(33) Thus not surprisingly, one of the main reasons of the success of the UPICC is their very
result: ‘a concrete, usable list of principles and rules’ that ‘addresses head-on the
traditional concern of practitioners that the lex [mercatoria] is too abstract and
impractical to be of any use in the real world’. (34) The UPICC are being referred to in an
increasing number of arbitration cases. Globalization in arbitration, which was for a long
time thought of as being only concerned with procedure, thus begins to encompass
substantive law in a significant fashion as well.
Whereas the rules on force majeure and hardship of the CISG, UPICC and the PECL have
considerably improved the content and hence the predictability of these exemptions,
they still use various indefinite terms which come close to blanket formulas. The force
majeure excuse presupposes the occurrence of ‘an impediment beyond (…) [the non-
performing party's] control’, (35) and there is hardship ‘where the occurrence of events
fundamentally alters the equilibrium of the contract’. (36) Yet any drafter of a force
majeure exemption provision is faced with the difficulty of providing both flexibility and
predictability of results. (37) Open-ended rules are intended to warrant the freedom of
the judge to apply them in a way that adequately fits a particular situation.
Albeit to a somewhat lesser degree than general clauses, indeterminate terms also
require a discretionary judgment by the judge, who has to test the circumstances of the
individual case in order to assess whether the more or less indefinite requirements are
met. Courts strive to reduce the vague concept contained in general clauses or
indeterminate terms ‘by carving out discrete sets of case and formulating concrete
criteria of distinction’. (38)
This treatise will discuss the different constituent elements of the force majeure and
hardship exemptions in light of a comparative law analysis, particularly the available
case law on the respective elements. The purpose of this approach is to minimize the
vagueness necessarily contained in indeterminate terms; the approach thus attempts to
contribute to the further development of the use of general principles of law in this
particular field. (39) While it is hoped that this may also enhance the predictability of
P 8 outcomes in particular situations, it is also true that ‘[i]n the last resort the certainty of
the law does not depend on the provisions of a code or the strictness of a rule of
precedent, but on the wisdom of the judges’. (40)

III The Objective: Establishing Specific Standards and ‘Case Groups’ for the
Different Elements of the Exemptions under Review
The objective of this study is by no means to develop yet another general rule on force
majeure and hardship which would compete with the relevant provisions of the existing
soft law restatements. Indeed, what Kötz observed with regard to the unification of law in
general is also applicable in the present context: (41)
However, at a closer look the question appears justified whether uniform law,
in as far as it intends to simplify law, does not find itself in the position of
Heracles who cut off Hydra's snake head only to be confronted with three new
ones instead.
In the present study, the various elements of the force majeure and hardship exemptions
as provided for in the CISG, UPICC and PECL will be the starting point of a comparative
law analysis. The focus will be on establishing specific standards and ‘case groups’ for the
different elements of the exemptions under review. The more general contract principles
are particularized, the more likely they can be used for the decision-making process in
specific cases. Moreover, individual groups of cases may promote consistency of decision
which, from an economic perspective, may reduce uncertainty and litigation, and enable
well-informed contractors to adjust their affairs in accordance with the risks to be
carried: ‘It may make little difference to the community at large which party bears the
risk, but it is important that the contracting parties know in advance which one will likely
bear it, so they can order their affairs differently if they wish to deviate from the norm.’
(42)
Indeed, working out case groups on the basis of relatively simple unitary rules, such as
those provided for in the CISG/UPICC, seems to be the best remedy against the difficulty
P 9 which is necessarily inherent in the attempt to distinguish between those cases in

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 which a party whose bargain turns out badly should be stuck with the consequences of
the original deal (according to the principle of pacta sunt servanda), and those cases in
which it is just to exempt the aggrieved party. On the one hand, the value of the contract
as a social institution for encouraging economic activity would become meaningless if a
party's obligation could be avoided any time a contract does not turn out as favourably
as that party had hoped. On the other hand, at some point, a point sometimes difficult to
identify, intervening events may make performance of the aggrieved party so far beyond
the parameters of its undertaking that it seems appropriate to excuse that party from
performance or to grant it some kind of relief.
Any remaining uncertainties in this field are hardly due to the application of general
contract principles as opposed to domestic rules. As regards the attempt to apply both
the common law and the rules of the Uniform Commercial Code (UCC) on issues of
discharge by impracticability and frustration of purpose, White and Summers observed:
(43)
In spite of the attempts by all of the contract scholars and even in the face of
eloquent and persuasive general statements, it remains impossible to predict
with accuracy how the law will apply to a variety of relatively common cases.
(…) Students who (…) have found that the cases somehow slip through their
fingers when they try to apply them to new situations, may take some comfort
in knowing that they are in good company.
The difficulty and challenge to deal adequately with such situations may in part explain
why a great number of legal writers have addressed the problems of force majeure and
hardship. The question of the borderlines of the principle of sanctity of contracts is, and
will remain, a fundamental question of contract law, and it may be seen to involve the
P 9 philosophical issue of ‘formal’ and ‘material’ justice. (44)

References
1) See Böckstiegel, RIW (1984): 1.
2) Mustill at 174-175.
3) Id., at n. 84. See also Magnus, ‘Force Majeure and the CISG’, 2 (‘Finding the proper
balance between the principle of the binding force of a contract and justifying
exemption is always a delicate task’).
4) These sets of rules are called soft law codifications because they are published by
private working groups without any legislative power. Moreover, following the
tradition of ‘the general principles of law’ in public international law (cf. Art. 38(1)(c)
of the Statute of the International Court of Justice), the UPICC, PECL and TLDB-
Principles are called ‘principles’ and not ‘rules’. They do not use the term ‘principles’
in the sense of ‘guiding standards’ (which may be relevant or not in a particular case,
depending on whether there are other principles or policies arguing in the other
direction) as opposed to rules (which do not only point in one direction, but
necessitate a particular decision if their pre-conditions are met; for the distinction
see Dworkin, ‘The Model of Rules’, U. Chic. L. Rev. 35 (1967): 14 ff.), but because they
intend to emphasize their general and (more or less) universal character.
5) Because of the adoption of the ALI/UNIDROIT Principles of Transnational Civil
Procedure, as well as because of the likelihood that ‘principles’ on other areas of
private and commercial law (e.g., capital market law) may see the light of day before
long, the abbreviations ‘UNIDROIT Contract Principles’ (instead of ‘UNIDROIT
Principles’) and ‘UPICC’ should be used (Kronke, J.L. & Com. 25 (2005): 451). For the
UPICC see also infra p. 19.
6) A second, enlarged edition of the UPICC was published in 2004, which, however, left
the chapters relevant for the subject matter of the present treatise unchanged (Ch. 6,
s. 1: ‘Performance in General’ and s. 2: ‘Hardship’; Ch. 7, s. 1: ‘Non-performance in
General’, s. 2: ‘Right to Performance’, s. 3: ‘Termination’ and s. 4: ‘Damages’).
7) In 1995, the Commission on European Contract Law published Part I of the PECL, which
deals with performance, non-performance and remedies (i.e., the topics which are
relevant for the subject matter of the present treatise). In Dec. 1999, a revised and
expanded version of Parts I and II of the PECL was published (Lando/Beale (eds), The
Principles of European Contract Law, Part I and II Combined and Revised (2000)). Part
III of the PECL, finalized in 2001-2002 and published in 2003, contains additional
chapters to the 1999 version of PECL (see
<[Link] As a result
of the work of the Study Group on a European Civil Code (<[Link]/>), which
aims to develop an annotated European model law for the core materials of private
law, i.e., the law of obligations and core aspects of the law of property, as well as
other groups, draft articles on additional topics of contract law are being prepared,
which will–at least in the short and medium term–be relevant as soft law,
particularly as a source of ‘European general principles of law’ (cf. Lando, The
Principles of European Contract Law and the lex mercatoria, 391, 397 ff.; von Bar
(general ed.), The Private Law Systems in the EU (2000)).

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 8) Berger, ‘The New Law Merchant and the Global Market Place’, 13. He also notes that a
non-positivistic notion of the law is beginning to emerge, causing a change in legal
theory (at p. 19): ‘The traditional theory of legal sources which was centred around
the notion of sovereignty is being replaced by a legal pluralism which accepts that
society's ability for self-organization and coordination is more than a mere factual
pattern without independent legal significance.’
9) See Berger, Am. J. Comp. L. 46 (1998): 129, 130; Bonell, An International Restatement of
Contract Law, 9 ff.
10) Bonell, id., at 14-17.
11) Farnsworth, Am. J. Comp. L. 40 (1992): 699. He further states (id.): ‘For sales, the English
have their Sale of Goods Act, the Americans their Art. 2 of the Uniform Commercial
Code (UCC). But for contract law, for the most part, the English have only case law and
the Americans have only case law with a Restatement. (Although Arthur Rosett
mentioned the Field Civil Code, enacted in California and a few other states, I do not
think he would count this as a significant exception).’
12) Magnus, ‘General Principles of UN-Sales Law’, s. 5.b.(2), referring to Arts 71-73 and,
above all, Art. 79 CISG. See also infra Ch. 4.
13) Craig/Park/Paulsson, 645.
14) At 651. They add, however, that ‘the reader should be aware of the fact that many if
not most cases deal with contracts that contain force majeure clauses, and thus do
not necessarily support the proposition that there exists a general principle of force
majeure independent of contractual stipulation. Rather, these cases suggest rules for
interpreting force majeure clauses, which often follow standard forms and cannot be
applied mechanically to the concrete situations that arise’.
15) Craig/Park/Paulsson, 638.
16) Comment No. 1 on Art. 7.1.7 UPICC; Doudko, ‘Summary of the seminar on “Force
Majeure and Hardship” organised by the ICC’, II. (Force majeure clauses in contractual
practice, Chair: M. Fontaine), Unif. L. Rev. (2001): 5.
17) The term ‘general contract principles’ as used in the present context means generally
or internationally recognized principles of international commercial contracts. As
synonym, the terms ‘general principles of law’, ‘general standards’ and ‘generally
recognized standards’ are used. See infra pp. 12 ff.
18) Craig/Park/Paulsson, 625.
19) Sanders, ‘Acts of State’ (1997), 39. See also Berger, Am. J. Comp. L. 46 (1998): 129, 130 ff.
20) Ibid.
21) See the results of the CENTRAL enquiry conducted in 1999
(Berger/Dubberstein/Lehmann/Petzold, 103-107). The CENTRAL enquiry has in
particular shown that the overwhelming majority (85%) of those addressees who
indicated that they had been in touch with transnational law in the context of
contract drafting indicated that the contract contained an arbitration clause (id., at
104).
22) See e.g., Berger, ‘Harmonisation of European Contract Law and the Influence of
Comparative Law’, ICLQ 50 (2001): 877 ff.
23) Gaillard, ‘The Use of Comparative Law in International Commercial Arbitration’ ICCA
Congress Series 4, 283 (1989); Berger, International Economic Arbitration, 22; id., Am. J.
Comp. L. 46 (1998): 130-132 and references there.
24) Berger/Dubberstein/Lehmann/Petzold, 106.
25) See Craig/Park/Paulsson at 628.
26) See infra Ch. 2.
27) See especially Berger, ‘The New Law Merchant and the Global Market Place’, 14 ff.
28) See, e.g., Berger, id., at 17; Berger, JZ (1999): 369 ff.; Kronke, JZ (2001): 1149 ff.; Goode,
Unif. L. Rev. (1997): 231 ff.
29) Cf. van Houtte/Wautelet, ‘International Lawyers and Uniform Law’, 106, with reference
to Taruffo, ‘Drafting Rules for Transnational Litigation’, ZZPInt (1997): 449, 458.
30) In his 1997 Wilberforce Lecture, ‘The Future of the Common Law’, ICLQ 46 (1997): 745,
748.
31) Van Houtte/Wautelet, International Lawyers and Uniform Law, 90.
32) See, e.g., Kropholler, Internationales Privatrecht, 4th edn (2001), 213.
33) See, e.g., Magnus, ‘General Principles of UN-Sales Law’, s. 4a, who notes: ‘In addition,
the task of conducting an intensive comparative legal analysis in order to ascertain a
general principle for a specific case at hand would be too much for a single person
applying the Convention.’
34) Fortier, Arb. Int. 17 (2001): 125. He adds (id.): ‘Surely, the most important attribute of
these collections is that they exist.’
35) Art. 7.1.7(1) UPICC.
36) Art. 6.2.2 UPICC.
37) Magnus, ‘Force Majeure and the CISG’, 11; Nicholas, ‘Impracticability and
Impossibility in the UN Convention on Contracts for the International Sale of Goods’,
pp. 5-9. (‘The words “due to an impediment” are indeed vague, but this degree of
vagueness is unavoidably present in any such formula.’)
38) Zweigert/Kötz, 381.

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 39) According to the 1999 enquiry conducted by CENTRAL, practitioners still widely
perceive that information on transnational law (such as reference books, court
decisions and arbitration awards in prior cases etc.) is not available
(Berger/Dubberstein/Lehmann/Petzold, 111).
40) Sauveplanne, ‘Codified and Judge Made Law, the Role of Courts and Legislators in
Civil and Common Law Systems’, in Mededelingen der Koninklijke Nederlandse
Akademie van Wetenschappen, Afd. Letterkunde 95, 119 (1982).
41) In Rabels, Z. 1986, 7. With regard to the quoted statement, Magnus (in ‘General
Principles of UN-Sales Law’, s. 1) has pointed out: ‘The careful reader of Kötz will
realize that by criticizing–legislative–attempts to unify law he by no means rejected
them completely. Rather, Kötz legitimately warns that such a unification has to be
attempted moderately, that especially the coordination of various unification
attempts and unifying organizations has to be improved. Every reasonable person
will agree with Kötz's opinion that a multitude of independent co-existing
Conventions is not a desirable permanent state of affairs.’
42) Nehf, in Corbin on Contracts, § 74.15, p. 94.
43) At 143.
44) Tercier, JT (1979): 195.

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Document information Chapter 1: Introduction, Section 2: General Principles of
Commercial Contracts: Methodological Approach
Publication
Force Majeure and
I The Traditional lex mercatoria Doctrine, Its Deficiencies and the Distinct
Hardship under General Concept of General Contract Principles
Contract Principles:
Exemption for Non- A The Deficiencies of the Traditional lex mercatoria Doctrine
performance in The catch-phrase lex mercatoria (or literally, law of the merchant) is used to cover
International Arbitration different concepts and is therefore over-burdened with meaning. (45) The most ambitious
P 10 concept of the lex mercatoria is that of an autonomous legal order, created
spontaneously by parties involved in international economic relations and existing
Bibliographic reference independently of national legal orders. (46) The late Professor Goldman, who named the
concept and promoted its development, (47) referred to it as having had ‘an illustrious
'Chapter 1: Introduction, precursor in the Roman ius gentium’, that is, ‘an autonomous source of law proper to the
Section 2: General economic relations (commercium) between citizens and foreigners (peregrine)’. (48) He
Principles of Commercial described the lex mercatoria as ‘a body of specific rules, including transnational custom,
Contracts: Methodological general principles of law and arbitral case law’. (49) Originally, the concept was more
Approach', in Christoph specifically concerned with a set of rules arising out of, and adapted to, international
Brunner , Force Majeure commerce, and it has thus sometimes been intermingled with the distinct concept of
and Hardship under trade usages. (50)
General Contract
Principles: Exemption for The lex mercatoria has attracted significant controversy over the years. (51) It has been
Non-performance in criticized as ill-defined, uncertain, elusive and even ‘mythical’. (52) The criticisms do not
International Arbitration, only relate to the nature and origin of the lex mercatoria, (53) but also and above all to its
International Arbitration perceived practical deficiencies. The following three problematic aspects of the lex
Law Library, Volume 18 mercatoria have been identified: (54)
(© Kluwer Law
International; Kluwer Law First, there is no clear consensus on its sources, although a number of sources
International 2008) pp. 9 - have been identified with some consistency in the literature and elsewhere.
22 Second, it is unclear where the new lex will be applied. Third, the new lex
mercatoria is simply lacking in content.
With respect to these problem areas, the one that is most relevant to the topic
of inquiry is how the content of the lex is to be ascertained. At this embryonic
stage of development, the substance of the lex seems to be little more than
maxims. Granted these maxims may offer some guidance to those who seek to
resolve commercial conflicts, but many are so insufficiently developed that
they typically cannot perform the substantive role associated with the law as
a planning tool.
The question as to what the relevant sources and the scope of application of the lex
mercatoria are, is likewise relevant to the general principles of law approach and will
therefore be addressed below. (55) The most serious criticism of the lex mercatoria,
namely that it is lacking in content, is two-fold: on the one hand, the lex mercatoria has
P 11 been criticized on the grounds that it is far from being able to deal with the full range
of issues that may arise in international business disputes. On the other hand, should it
be the case that an issue arising in an international dispute is in fact covered by a
general principle, it is often either ‘obvious’ or ‘fuzzy’. (56) This is especially the case if
the relevant principle consists of indeterminate terms, ‘catch-all’ phrases or general
clauses. For example, the maxims pacta sunt servanda, rebus sic stantibus, the obligation
to perform in good faith and so on are ‘admissible as general propositions, but plainly
fall well short of being rules of specific application’. (57) They fail to address both the
necessary prerequisites for their application and the legal effects, and thus they fall
short of providing predictable answers.

B The Emergence of the New, New lex mercatoria

In 1987, Lord Mustill published a seminal article entitled The New Lex Mercatoria: The First
Twenty-five Years. (58) On the basis of a thorough analysis of the pertinent legal literature
and the (arbitral) case law, Lord Mustill identified a list of twenty principles,
‘representing a tolerably complete account of the rules which are said to constitute the
lex mercatoria in its present form’. (59) Lord Mustill concluded that ‘this list, incomplete
as it may be, seems rather a modest haul for twenty-five years of international
arbitration’. (60) The difficulty in determining the content of transnational law has
considerably hampered a serious discussion on the practical usefulness of the lex
mercatoria. As a result of the publication of the UPICC in 1994 and the PECL in 1995, there
has been a resurgence of interest in the issue. (61) These projects have shown that
transnational commercial law is more than a mere abstract academic subject, and ‘…
that it is capable of being codified in norm-like principles and rules together with
commentary-like explanations, thus providing international legal practitioners with a
means to apply the lex mercatoria in every day legal practice’. (62) The emergence of
these initiatives has resulted in what has been called (with reference to the above 1987
article by Lord Mustill) ‘the new, new, lex mercatoria’. (63)
P 12

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 The UPICC, the PECL and the TLDB principles, as well as the steadily increasing body of
case law, have significantly alleviated the above-mentioned problem of lack of content.
In the absence of any conflict or ambiguity, these lists will in many cases facilitate the
task of counsel and arbitrators having to plead and rule on the basis of transnational
rules. (64) Compared to some older national codifications, they have the additional
advantage of reflecting modern contract law theory and of suitably addressing many
general issues of modern commercial contract law practice. Yet it must also be
acknowledged that the degree of precision of these rules does not generally match that
of national codifications (65) which also provide for much more comprehensive rules with
regard to the different areas of commercial contract law.

C The Concept of General Contract Principles

In accordance with recent trends, the concept of ‘general principles of law’, or ‘general
contract principles’, as used throughout this book, is distinguished from the term ‘lex
mercatoria’. (66) Depending on the meaning ascribed to the lex mercatoria, the two
concepts stand for a different approach: general principles of international commercial
contracts are derived from a flexible system defined by their sources, that is, basically
comparative law (functional comparative methodology). (67) The methodology of
functional legal comparison is based on the assumption that every society faces
essentially the same problems and solves them by different means but with often similar
results. It attempts to look behind the dogmatic differences of domestic legal systems by
distilling common legal values and concepts out of seemingly different domestic legal
rules. (68) It is ‘horizontal’ in nature, i.e., it directs the focus of legal analysis away from
the ‘vertical’ view of the technicalities and historic origins of the domestic legal systems.
(69) The ‘general principles of law method’, which will be discussed in more detail below,
P 13 (70) is used above all in connection with decision-making. (71) Prima facie evidence of
such principles is found in the CISG and soft law codifications of international
commercial contract law, primarily the UPICC. (72)
In contrast to the lex mercatoria, the general principles of law do not claim to be
tantamount to ‘trade usages refined according to the needs of international commerce’.
(73) Indeed, international custom or trade usages should be distinguished from general
principles of law. (74) International trade usages include the practices usually followed in
a particular business sector, and not rules of law derived from comparative law or other
international sources as well. As such they are a source of law in their own right, which
arbitral tribunals are instructed to take into account ‘in all cases’, that is, even where the
parties have expressly chosen the law governing the dispute.
Moreover, general principles of law purport neither to be a ‘comprehensive legal system’,
‘an autonomous legal order’ nor ‘a supranational legal system between domestic law and
public international law’. (75) Although the general principles of law method does have
particular features of a system of law and certainly is of a supranational or transnational
character, it should essentially be understood as a methodological approach. Indeed, the
general principles of law may generally be seen as a more pragmatic rather than a
theoretical approach to the issue of transnational law. (76) It is certainly not by chance
that the UPICC (which may be seen as prima facie evidence of general principles of law)
do not use the term lex mercatoria. (77) As a result, they are not burdened with the
controversial debate over the lex mercatoria.
The general principles of law method is able to deal with the full range of legal issues
P 14 that may arise in international business disputes, regardless of whether there is a
‘codified’ pre-existing principle or not. In practice, however, the required comparative
work may be too time-consuming and expensive in the absence of any soft law
codifications or other guidelines. (78) Thus, the general principles of law approach is a
method which from a practical point of view is largely dependent on the existence of soft
law restatements or similarly concrete comparative law analyses. (79)
Notwithstanding the terminological distinction between the concept of the lex mercatoria
and that of the general principles of law, depending on how the lex mercatoria is defined
the two concepts may in many respects be interchangeable. For instance, Berger points
out that the UPICC are an indication of the existence of a transnational legal rule and are
therefore a possible source of the lex mercatoria, but are not the lex mercatoria. (80) This
remark similarly applies to the relationship between the UPICC and the general
principles of law method. The objectives are to a large extent the same and involve in
particular the purpose of discerning rules for international commerce that conform to the
parties' expectations.

II General Principles of Law Method

A Introduction
General principles of international commercial contracts (‘general contract principles’)
are mainly drawn from international instruments (conventions, uniform law, soft law
codifications), as well as a comparative law analysis of national laws and (arbitral) case
law. Such an analysis demonstrates widespread acceptance of the rule in question by the
international legal community. (81) The general principles of law approach is an attempt

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 to derive principles from the common features, which are reasonable from a practical
and theoretical perspective, of a selected set of legal systems, as well as from important
international instruments and case law.
In order to be considered a general principle, a rule should be recognized in many but
not all legal systems engaged in international commerce. Arbitrators should be able to
discriminate between rules which enjoy wide recognition, and rules which are particular
P 15 to one or to a limited number of legal systems. (82) Thus, the general principles of law
approach does not simply include those principles which constitute the common
denominator of all or most legal systems and international instruments. (83) Far from
being a mathematical process, the approach involves value judgments regarding the
content, interrelation and weight to be assigned to the individual sources. Where a
number of legal systems or international instruments have evolved on a particular issue,
the comparative law approach will often lead to the application of the most modern
trend and thus erase the oddities remaining in certain laws, but will on occasion also
avoid surprises arising from the adoption of an atypical rule in some recent statutes. (84)
Moreover, in the case of significant discrepancies between various national laws, the
solution of a particular general principle may even represent a minority view if it is
perceived to be ‘the best solution’ from the perspective of the needs and expectations of
international commerce. This approach has been adopted by the authors of the UPICC,
for which reason they may not only be characterized as a restatement but in part also as
a ‘pre-statement’ of international commercial contracts. (85)
The methodological approach of using the CISG or soft law codifications such as the UPICC
as prima facie evidence of general contract principles (see Section § [Link].B) has, if it is
compared to a strictly comparative approach where the relevant principle is yet to be
determined from the manifold sources, two significant advantages:
(1) it considerably facilitates the arbitrators' task if they are to apply general
principles of law to a particular dispute; and
(2) it provides more easily verifiable and authoritative grounds for their findings. (86)
However, the prima facie evidence character of the CISG, UPICC or other soft law
codifications does not put an end to the comparative law analysis under the general
principles of law approach. The latter is not limited to principles laid down in such
concrete sets of rules. It is a method – as opposed to a predetermined list – enabling
almost any number of principles to be identified and applied to each disputed situation.
P 16 (87) Of course, the method also allows the users to further refine a particular principle
and to develop discrete groups of cases and additional criteria of distinction.
In this treatise, the comparative analysis of national laws has been limited to
representatives of different legal families which have acquired a leading status in
commercial contract law. While the persuasive value of the general principles of law
method may be enhanced if the number of countries chosen for comparison is increased,
for the purposes of the present study, a selection was inevitable. (88) The focus has been
laid on legal systems which may be considered dominant or progressive in the field of
commercial contract law. From the common law tradition, English law and US American
law (the UCC and the Restatement (Second) of Contracts (89) ) have been considered. As
regards civil law countries, representatives of all three generations of codifications have
been taken into account: (90)
– the French Code Civil of 1804, as a ‘first generation codification’ and a
representative of the ‘Romanistic legal family’;
– the Swiss Code of Obligations of 1911, as a ‘second generation codification’ and a
representative of the ‘Germanic legal family’;
– the New Dutch Civil Code of 1992, as a ‘third-generation codification’ belonging to no
particular legal family (‘independent legal family’); and
– the German BGB after the Reform of the Law of Obligations of 2002, which is also to
be characterized as a ‘third-generation codification’.
The above legal systems and a number of others have been considered with respect to
their conceptual approach to the subject of force majeure and hardship.
For the purpose of interpreting and putting flesh on the bones of the individual
requirements of the force majeure and hardship exemptions under general contract
principles, arbitral case law, case law (from various jurisdictions and arbitral tribunals)
on the CISG, and, as regards domestic legal systems, mainly English, American, German,
and Swiss case law have been taken into consideration. This selection of domestic laws
by and large corresponds to the most frequently chosen laws in international arbitration.
According to the Statistical Reports of the ICC International Court of Arbitration for cases
registered with the Court in the years 2004 and 2005, in about 80% of all cases the parties
P 17 had provided for an applicable substantive law. In 2004, the most frequently chosen
laws were English and Swiss, followed by French, German, New York and Spanish law; in
2005, the situation was similar. (91)

B Prima Facie Evidence of General Contract Principles

1 The CISG

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 The CISG of 1980 can truly be regarded as part of the common core of the legal systems.
(92) By the end of 2006, seventy states had adopted the CISG, including states from each
region and accounting for over two-thirds of all world trade. (93) Under the aegis of
UNCITRAL, the CISG was prepared with the participation of countries harbouring different
legal, social and economic systems, and is therefore a truly international instrument. (94)
The CISG was based on the preceding Uniform Sales Laws adopted in the Hague in 1964,
namely the Uniform Law on the International Sale of Goods (ULIS) and the Uniform Law on
the Formation of Contracts for the International Sale of Goods (‘ULF’). (95) The rules of the
CISG seek to eliminate technicalities and peculiarities; they are meant to be simple,
accessible, and effective. In particular, the CISG avoids referring to abstract legal
doctrines or concepts which are peculiar to, or understood differently in, the various
legal systems. Instead, it describes specific circumstances and then elaborates on the
content of the individual rule. (96) In particular, the ‘force majeure’ excuse for non-
performance of Article 79 CISG does not use expressions such as force majeure,
P 18 impossibility, frustration or the like. Rather, it refers to ‘an impediment beyond [a
party's] control and which he could not reasonably be expected to have taken […] into
account at the time of conclusion of the contract or to have avoided or overcome […] its
consequences’.
Not surprisingly, the CISG was for both the UPICC and the PECL an obligatory point of
reference. (97) As stated by the editor of the CISG Database of the Pace Law School: (98)
The United Nations Convention on Contracts for the Sale of Goods of 1980 is
the world's uniform international sales law. Two more recent documents can
be regarded as companions to the CISG: the UNIDROIT Principles of
International Commercial Contracts (promulgated in 1994; discussed
elsewhere in this database), and the Principles of European Contract Law
(complete and revised version 1998). Like the U.S. Restatement of Contracts,
both were written by persons learned in this field of law. And, although they
are broader in scope, each in different ways, these are ‘Restatements’ that
include provisions derived from the CISG. Other sources were also considered.
Both ‘Restatements’ take cognizance of insights derived from the text of the
CISG, from scholarly commentaries on the CISG, from cases that have
interpreted the CISG, and from other sources.
Apart from the UPICC and PECL, the CISG has strongly influenced modern codifications of
contract law in many countries. (99) Against this background, the relevance of the CISG as
a source of international contract law exceeds its own sphere of application. It
constitutes probably the most important cornerstone for the general principles of law
approach. As noted by Magnus: (100)
The CISG provides a basic set of rules which has resulted from an intensive
comparison of legal systems and politically supported compromises between
these legal systems. Therefore, the CISG can and should constitute the basis
for the creation of a general law of contracts. Its provisions are to be
generalized only to supplement new issues and solutions and align these
issues and solutions with the needs of the industry.
Because of the broad-based recognition of the CISG, its provisions may be considered
prima facie evidence of general principles of law in the field of sales contracts, and even
beyond, where appropriate. (101)
P 19

2 Soft Law Codifications, Particularly the UPICC

Well-recognized soft law codifications of international commercial contracts, such as the
UPICC, may also be used as a guide to determine the content of general contract
principles. Their characterization as prima facie evidence of general contract principles
tends to become more compelling if a particular rule is embodied in more than one soft
law codification, for instance if the same principle is set out in the UPICC and the PECL, or
if it can otherwise be easily shown to be well-established in comparative law or
international case law.
Albeit in some different terms, the prima facie evidence of the UPICC and the CISG (in
situations outside its scope of application) as general contract principles has also been
acknowledged in arbitral awards. (102) For instance, in ICC Case No. 8502, which involved
a sales contract between a Vietnamese seller and a Dutch buyer, the tribunal stated:
(103)
In particular, the Arbitral Tribunal shall refer, when required by the
circumstances, to the provisions of the 1980 Vienna Convention on Contracts
for the International Sale of Goods (Vienna Sales Convention) or to the
Principles of International Commercial Contracts enacted by Unidroit, as
evidencing admitted practices under international trade law. (emphasis added)
Among the different soft law codifications, special weight should be given to the UPICC,
for of all presently existing soft law codifications the UPICC do have the most

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 international and universal character. (104) The objective of the UPICC has been to
establish a neutral and balanced set of rules designed for use throughout the world,
P 20
irrespective of the legal traditions and the economic and political conditions of the
countries in which they are to be applied. (105) Of the national codification or
compilations of law a greater attention was given to the most recent ones. (106) Since the
UPICC have generally also been very well received by scholars and practitioners alike,
(107) they seem in fact to be best suited to serve as prima facie evidence of a particular
general principle. This should at least be true to the extent that a certain principle has
not faced significant criticism or is clearly at odds with principles included in other soft
law codifications. In any event, the cases where the PECL, which are intended to be
applied as general rules of contract law in the European Communities (Article 1:101(1)
PECL), really conflict with the UPICC are relatively rare. This is so to a significant extent
due to the broader scope of the PECL, which in contrast to the UPICC also apply to
consumer transactions. (108)
An objection to the characterization of the UPICC as prima facie evidence of general
contract principles may be that the UPICC do not readily allow the user to make his or her
own judgment as to the comparative persuasiveness of a particular rule. The UPICC do not
contain notes or comments specifying the comparative references (such as statutory
provisions of domestic laws, court judgments, arbitral awards, conventions, legal writings)
on which the wording of the principle is based. (109) As a result, the comparative
persuasiveness of the UPICC rests to a large extent on the composition and authority of
the UNIDROIT Working Group. However, since the UPICC correspond to a very large degree
with the PECL, which include comparative law references, this drawback of the UPICC is
P 21 considerably mitigated. (110) The TLDB list of principles, which to a large extent also
corresponds to the UPICC and PECL, provides the user with a black letter text and
references taken from international arbitral awards, domestic statutes, international
conventions, standard contract forms, trade practices and usages, other sample clauses
and academic sources. In addition, the rapidly growing number of legal authorities (case
law and scholarly materials) on the individual rules of the UPICC are publicly available at
the UNILEX database. Moreover, the absence of references to domestic legal systems in
the comments on the UPICC may have the advantage of promoting an autonomous
interpretation of the UPICC, without recourse to particular national laws. (111)
If both parties to an international dispute are from more or less adjacent countries of a
particular region, the prima facie evidence of both the UPICC as a universal soft law
codification and that of the particular region (if existing) will usually have significant
weight. For instance, in a dispute involving two European parties, the prima facie
evidence of the UPICC and the PECL with regard to a specific applicable principle could
hardly be affected by a divergent principle set forth in the UCC or the Restatement (2d) of
Contracts.
In situations of conflicting soft law codifications, the arbitrators will need to follow the
comparative law methodology: ‘This task will be (with the assistance of the various lists
available, arbitral precedents and, in some instances, international conventions) to
assess whether or not the rule invoked by a party reflects a norm which genuinely
corresponds to a trend enjoying broad international recognition.’ (112)
Soft law codifications of general contract principles are always the reflection of a
comparative law effort taken at a given time. In order to continue to reflect the most
current status of an issue, they need to be updated regularly. UNIDROIT has adopted a
P 22 second, adapted and expanded edition of the UPICC in 2004, (113) and CENTRAL
emphasizes the permanent updating of its TLDB. (114) If a soft law codification is
nevertheless perceived to be ageing, i.e., where there are doubts as to whether a
particular rule still reflects an appropriate, up-to-date general standard, ‘arbitrators
ruling pursuant to transnational rules are perfectly free, and indeed encouraged, to
P 22 search for the most current status of the issue’. (115)

References
45) This perception has been confirmed by the empirical enquiry conducted by
CENTRAL in 1999 (Berger/Dubberstein/Lehmann/Petzold, 105-06). For the different
meanings see Berger, The Creeping Codification of the Lex Mercatoria, 39-41.
46) See Goldman, ‘Contemporary Problems in International Arbitration’ (1983), 116.
47) Berger, ‘The New Law Merchant and the Global Market Place’, 6-7 with references.
48) Goldman, ‘Lex Mercatoria’, Forum Internationale, 3 (Nov. 1983), quoted according to
Redfern/Hunter, para. 2-59.
49) Goldman, id., at 21.
50) Derains/Schwartz, 236 at n. 90. For the concept of trade usages, see infra pp. 36 ff.
51) See especially Dasser, ‘Internationale Schiedsgerichtsbarkeit und Lex Mercatoria’
(1989), 31-73.
52) Id. But see, e.g., Fouchard/Gaillard/Goldman, para. 1454 (pp. 811-813).

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 53) For these questions see especially Mustill (infra n. 58), 150 ff. For the conceptual and
ideological criticism, see also Fouchard/Gaillard/Goldman, paras 1450-1453 (pp.
808-811).
54) O'Neill/Salam, Transnational Rules in International Commercial Arbitration (1993),
quoted by Redfern/Hunter, para. 2-61, p. 120 (3rd ed. 1999).
55) For the sources see infra pp. 12 ff.; for the scope of application of general contract
principles, see infra pp. 23 ff.
56) See Craig/Park/Paulsson, 639-40.
57) Redfern/Hunter, paras 2-61, p. 120 (3rd ed. 1999).
58) In Liber amicorum for Lord Wilberforce 149 (1987), reproduced in Arb. Int. 4 (1988):
86. Systematic discussion of the concept of the lex mercatoria first began to flower
in the early 1960s, under the stimulus of the London Conference on the Sources of
International Trade in 1962. This was followed by several important treatises,
including influential discussions by Professor Berthold Goldman and Professor C.M.
Schmitthoff (Mustill at 150). Hence the title of Mustill's essay (‘… The First Twenty-
Five Years’). It should be noted, however, that it was only in 1974 when the ICC began
to publish excerpts of awards (Craig/Park/Paulsson, 623).
59) Mustill, 174.
60) Id., at 177.
61) See, e.g., Baron, ‘Do the UNIDROIT Principles of International Commercial Contracts
Form a New Lex Mercatoria?’, Arb. Int. 15 (1999): 115-130.
62) Berger, The Creeping Codification of the Lex Mercatoria (1999), 3; see also Fortier, ‘The
New, New Lex Mercatoria, or, Back to the Future’, Arb. Int. 17 (2001): 121, 124.
63) Nottage, Arb. Int. 16 (2000): 53, 59-60.; Fortier, Arb. Int. 17 (2001): 121, 124.
64) Gaillard, Arb. Int. 17 (2001): 59, 65; with regard to the UPICC see Bonell, ‘The UNIDROIT
Principles and Transnational Law’, 41.
65) See Dasser, Vertragstypenrecht im Wandel (2000), 208-09: of the approximately 200
paragraphs of the UPICC approximately sixty, or 30%, refer to the particular
circumstances, or general clauses such as reasonableness or good faith. By contrast,
this is only true of about 10% of the respective paragraphs of the Swiss Code of
Obligations.
66) See also Fouchard/Gaillard/Goldman, para. 1454 (p. 813). But see
Craig/Park/Paulsson, 625, who stick to the notion of ‘lex mercatoria’. They note:
‘While tempted to opt for a new expression and thus be free to define concepts
afresh, upon reflection the present authors have not done so.’
67) See Gaillard, Arb. Int. 17 (2001): 59, 61-62.
68) Berger/Dubberstein/Lehmann/Petzold, 108.
69) Berger, ‘Harmonisation of European Contract Law’, ICLQ 50 (2001): 887 and
references there.
70) Infra pp. 14 ff.
71) Gaillard, Arb. Int. 17 (2001): 62.
72) Similarly, Berger, ‘Harmonisation of European Contract Law’, ICLQ 50 (2001): 882-83,
has stated: ‘There may be a presumption that these black letter rules [i.e., the UPICC
and PECL] reflect the comparative ratio scripta of international contract law. The
user, however, must be able to convince himself of the depth and scope of the
comparative research that underlies every single rule. This requires that the
comparative research on which these principles and rules are based is disclosed to
the user.’ See infra pp. 17 ff., 19.
73) For this definition of the lex mercatoria, see the references in Berger, The Creeping
Codification of the Lex Mercatoria, 40 at n. 59.
74) See Gaillard, ‘La distinction des principes généraux du droit et des usages du
commerce international’, in Etudes Offertes à Pierre Bellet, 203, 204-09 (1991);
Poudret/Besson, para. 692; infra pp. 36 ff.
75) But cf. Berger, The Creeping Codification of the Lex Mercatoria, 39-43, who has
adopted the latter definition. See also Poudret/Besson, paras 696-97 (p. 636) and
Lima Pinheiro, ‘The “Denationalization” of Transnational Relationships’, (2001), 440-
41, according to which the lex mercatoria cannot be characterized as an autonomous
legal system.
76) It is generally emphasized that it is most appropriate to adopt a pragmatic
approach to this topic, see Redfern/Hunter, paras 2-58. The empirical enquiry
conducted by CENTRAL in 1999 has confirmed the need for workable and concrete
rules (Berger/Dubberstein/Lehmann/Petzold, 106-07).
77) The same is true for the PECL. While the CENTRAL Transnational Law Database (TLDB)
refers to its list of principles as ‘CENTRAL List of lex mercatoria principles, rules and
standards’, the term lex mercatoria is used in the sense of the ‘New Lex Mercatoria’
(see <[Link]
78) Cf. Berger, ‘The Practice of Transnational Law’ in Summary of Discussions, ed. Berger,
126.
79) See also Berger, The Creeping Codification of the Lex Mercatoria, 218-20.
80) The Creeping Codification of the Lex Mercatoria, 179, 207.
81) There are other ‘unofficial’ comparative law resources such as standard or model
contracts or legal writings on particular topics of transnational law. For a general
overview of the sources, see Horn, ‘Contract Law of International Trade and Finance’,
67 ff., and the sources included in the TLDB database.

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 82) Gaillard, ‘Transnational Law: A Legal System or a Method of Decision Making?’, Arb.
Int. 17 (2001): 59, 63-64, 70; Fouchard/Gaillard/Goldman, para. 1458, p. 816 (‘That [the
proposition that a rule, in order to be considered as a general principle, would have
to be found in every legal system] would amount to giving a veto to systems which
take an isolated position, whereas the goal is precisely to find a generally accepted
tendency rather than to select, often somewhat randomly, a particular legal system
to govern disputes.’); but see with regard to the lex mercatoria Mustill, 155 (‘The
proponents of the lex mercatoria claim it to be the law of the international business
community: which must mean the law unanimously adopted by all countries
engaged upon international commerce.’).
83) The UNIDROIT Contract Principles have been prepared on the same basis. As stated
by Furmston (The UNIDROIT Principles and International Commercial Arbitration,
205): ‘the working group did not attempt to find a lowest common denominator of
contract rules. This kind of enterprise makes good sense in a federal jurisdiction like
the United States where the differences between individual States are relatively
small; where the conceptual apparatus of all contract lawyers is common; and,
where on many issues all States will apply the same rule. The working group tried to
produce a set of principles which was internally coherent.’
84) Id., at 70.
85) See Karrer, Art. 187, PILS para. 71; Kronke, JZ (2001): 1153.
86) See Bonell, Arb. Int., 17 (2001): 249, 261.
87) Fouchard/Gaillard/Goldman, para. 1454 (p. 813); Gaillard, Arb. Int., 17 (2001): 62-63.
88) For general considerations regarding the selection of national laws for a
comparative law analysis, see Rusch, in Jusletter 13. Feb. 2006, especially paras 20 ff.
89) The Uniform Commercial Code (UCC) is a joint product of the National Conference of
Commissioners on Uniform State Laws and the American Law Institute. The UCC, a
model law whose original Articles have been adopted in nearly every state,
represents a body of statutory law that governs important categories of contracts.
The main Articles that deal with the law of contracts are Art. 1 (General Provisions)
and Art. 2 (Sales). The Restatement (Second) of Contracts is a work product of the
American Law Institute (ALI). Most of the principles of the common law of contracts
are outlined in the Restatement (Second) of Contracts. When construing the UCC,
courts and scholars often cite this Restatement.
90) Regarding the different generations of civil law codifications See, e.g., Wieacker,
‘Auftrag, Blüte und Krisis der Kodifikationsidee’ (Festschrift Boehmer 1954), 34, 46;
Blaurock, ‘Europäisches Privatrecht,’ JZ (1994): 270.
91) For 2004 see ICC Bull. (2005): 5 ff.; ASA Bull. (2005): 671. For 2005 see ICC Bull. (2006):
11: ‘The most common choices were, in descending order of frequency, the laws of
Switzerland, England, States of the USA [most frequently the law of the State of New
York], France, Germany, Spain, Italy, Netherlands, Brazil and, in equal position,
Mexico and Singapore.’
92) Audit, The Vienna Sales Convention and the lex mercatoria (1998), 193; Lando,
‘European Contract Law and the lex mercatoria’ (2000), 399.
93) If the current trend continues, the CISG will in time be subscribed to by over 100
countries, and it is thus moving towards virtually unanimous acceptance (Pace
Database, ‘Identification of Contracting States’). The CISG has been acceded to by
all major trading nations except the United Kingdom and Japan.
94) At the United Nations Diplomatic Conference which adopted the CISG in 1980, 62
states took part: 22 European and other developed Western states, 11 socialist, 11
South-American, 7 African and 11 Asian countries; in other words, roughly speaking,
22 Western, 11 socialist and 29 third-world countries (Eörsi, Am. J. Comp. L. 31 (1983):
335). UNCITRAL's success in preparing a convention with wider acceptability is also
evidenced by the fact that the original eleven states for which the CISG came into
force on 1 Jan. 1988 included states from every geographical region, every stage of
economic development and every major legal, social and economic system. The
original eleven states were: Argentina, China, Egypt, France, Hungary, Italy, Lesotho,
Syria, United States, Yugoslavia and Zambia (Explanatory Note by the UNCITRAL
Secretariat on the United Nations Convention on Contracts for the International Sale
of Goods, Pace Database).
95) Available at the UNIDROIT website.
96) See Audit, ‘The Vienna Sales Convention and the Lex Mercatoria’ (1998), 178.
97) Farnsworth, Am. J. Comp. L. (1992): 700-701; Bonell, An International Restatement of
Contract Law, 48, 305.
98) At <[Link]/cisg/text/[Link]>.
99) See Schlechtriem, in Schlechtriem/Schwenzer, Introduction at s. 4; Magnus, ZEuP
(1999): 642, 646 and references there.
100) Magnus, ‘General Principles of UN-Sales Law’, s. 6.b.

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 101) See, e.g., award in ICC Case No. 9474 of Feb. 1999 (ICC Bull. 2001, 60-61; UNILEX),
involving a contract between National Bank of Country X and a private party for the
printing of bank notes. The parties had agreed that the disputes should be decided
‘fairly’. The arbitral tribunal determined that it would apply ‘the general standards
and rules of international contracts’. It held that the CISG embodies universal
principles applicable in international contracts. However, also in view of the fact
that the second so-called executory agreement concluded between the parties was
not any longer a mere sales contract, but rather involved components of a
settlement agreement, it decided to apply together with CISG ‘other recent
documents that express the general standards and rules of commercial law’, such as
the UPICC. See also the award in ICC Case No. 8502 (infra at n. 103).
102) Apart from the awards cited infra, see, e.g., award in ICC Case No. 7110 of 13 Jul. 1995,
Unif. L. Rev. (1997): 812, UNILEX (‘this Tribunal finds that general legal rules and
principles enjoying wide international consensus, applicable to international
contractual obligations and relevant to the Contracts, are primarily reflected by the
Principles of International Commercial Contracts adopted by Unidroit’ [emphasis
added]); award in ICC Case No. 7365 of 05.05.1997, Unif. L. Rev. (1999): 796, UNILEX
(abstract); Bonell, The UNIDROIT Principles and Transnational Law, 32-33.
103) Award in ICC Case No. 8502 of Nov. 1996, ICC Bull. 1999, 72-74, UNILEX; see also Bonell,
The UNIDROIT Principles and Transnational Law, 31.
104) The Working Group was composed of experts representing the major legal and socio-
economic systems of the world. On the origin and preparation of the UPICC see
Bonell, An International Restatement of Contract Law, 27 ff.
105) UNIDROIT (ed.), Principles of International Commercial Contracts (1994), Introduction.
106) I.e., the UCC and Restatement (2d) of Contracts, the New Dutch Civil Code of 1992, the
New Civil Code of Québec of 1994, the 1985 Foreign Economic Contract Law of the
People's Republic of China, and the Algerian Civil Code of 1975 (Bonell, Am. J. Comp.
L. 40 (1992): 617, 622). As particularly influential domestic texts, Farnsworth, another
member of the Working Group, has mentioned the UCC, the Restatement (Second) of
Contracts, the new Dutch Civil Code and the new Quebec Civil Code, as well as the
‘the older domestic texts, including the great French and German codifications’ (Am.
J. Comp. L. 40 (1992): 700).
107) See, e.g., UNIDROIT Principles: New Developments and Applications (ICC Bull.,
Special Supp. 2005), with contributions by Kronke (Introduction, pp. 7-8), Bortolotti
(Reference to the UNIDROIT Principles in Contract Practice and Model Contracts (pp.
57-64), Jolivet (The UNIDROIT Principles in ICC Arbitration, pp. 65-72); Kronke, JZ
(2001): 1153; Horn, ‘Contract Law of International Trade and Finance’, 74; Berger, Am.
J. Comp. L. 46 (1998): 129, 132. For published court decisions and arbitral awards
relating to the UPICC, see UNILEX.
108) Bonell, ‘The UNIDROIT Principles of International Commercial Contracts and the
Principles of European Contract Law: Similar Rules for the Same Purposes?’, Unif. L.
Rev. (1996): 229-30; Bonell, in Summary of Discussions, in Berger (ed.), The Practice of
Transnational Law at 118; accord Sanders, id., at 119. Since the UNIDROIT Working
Group and the Commission on European Contract Law were to a large extent dealing
with the same topics (especially performance, non-performance and remedies) at
about the same time (supra p. 2), they did inevitably influence each other. This is all
the more so as a number of the experts involved were members of both groups, the
same methodology was used, and the Commission on European Contract Law
equally drew inspiration from legal materials outside Europe, in particular the
Restatement (2d) of Contracts, the CISG and the Swiss Code of Obligations (cf.
Bonell, An International Restatement of Contract Law, 335 ff.).
109) Berger, ‘Harmonisation of European Contract Law’, ICLQ 50 (2001): 883; id., the
Creeping Codification of the Lex Mercatoria, 224.
110) See also Basedow, ‘Die UNIDROIT-Prinzipien der internationalen Handelverträge
und das deutsche Recht’, FS Lüderitz, 4. For the comparative law references in the
PECL, see the Notes on the Articles of the PECL in Lando/Beale (eds), The Principles
of European Contract Law, Part I and II Combined and Revised (The Hague, 2000).
111) For the concept of autonomous interpretation, see also Art. 7(1) CISG. The drafters of
the UPICC abstained from including references to national legal systems to avoid
highlighting the fact that in the preparation of the UPICC, some legal systems played
a more significant role than others, and in order to emphasize the international
character of the UPICC which are detached from any domestic legal system (Bonell,
An International Restatement of Contract Law, 68, 338-39; but see the critical remarks
by Berger, Harmonisation of European Contract Law, ICLQ 50 (2001): 882-83).
112) Gaillard, Arb. Int. 17 (2001): 64-65. He also notes: ‘Just as they [arbitrators] have dealt
with conflicts of law, arbitrators having to apply transnational rules may now have
deal with conflicts of lists.’ Furthermore, Gaillard has suggested that if the
comparative research reveals that the legal systems are more or less equally
divided and provide contradicting solutions, one way to make a decision as to which
law prevails is to look at where the connecting factors are. See Gaillard in Summary
of Discussions, in Berger (ed.), The Practice of Transnational Law at 126.

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 113) See the website of UNIDROIT. As noted by Kronke (in UNIDROIT Principles: New
Developments and Applications, ICC Bull., Special Supp. 2005 at 8): ‘The 2004
edition of the Principles is by no means the end of our journey. UNIDROIT's work
goes on and we are already looking ahead to a further version of the Principles some
years hence.’
114) ‘The TLDB is based on the idea of the “Creeping Codification” of Transnational Law:
an open list of principles and rules of the lex mercatoria that is constantly updated
but never completed.’ See <[Link]/>, ‘Purpose and Concept’.
115) Gaillard, Arb. Int. 17 (2001): 69.

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Document information Chapter 2: Scope of Application of General Contract
Principles, Section 3: General Remarks on the Governing
Publication Law and the Application of General Contract Principles
Force Majeure and
Hardship under General I Introduction
Contract Principles:
Exemption for Non- In private international law, the applicable substantive law (also referred to as the
performance in governing law, the proper law of the contract, or ‘lex causae’), is primarily determined
International Arbitration according to the parties' choice of law. Pursuant to the principle of party autonomy, the
parties are free themselves to select the law governing their contract. (116) Only in the
absence of a choice of law must the applicable law be determined by the court or
arbitral tribunal in accordance with the relevant criteria. (117) In most international
Bibliographic reference commercial contracts, including those where one of the parties is a state or a state entity,
'Chapter 2: Scope of it is usual for a given national system of law to be chosen as the law applicable to the
Application of General contract itself. (118) By the same token, in the absence of a choice made by the parties,
Contract Principles, Section arbitrators will in most cases select a particular national law, and thus a complete legal
3: General Remarks on the system, designed to provide an answer to any legal question that might arise and
Governing Law and the capable of being interpreted in a reasonably accurate way by experienced practitioners.
Application of General (119)
Contract Principles', in P 24
Christoph Brunner , Force
Majeure and Hardship However, due to various reasons which will be further discussed below, parties, and in the
under General Contract absence of a choice of law arbitral tribunals, may find that it is not appropriate to apply
Principles: Exemption for a specific national law in the same way as it would be applied in a domestic context, and
Non-performance in that transnational rules should be taken into account in some form or another. Reference
International Arbitration, to general principles of law has a long tradition in international arbitration. (120) The
International Arbitration question to be addressed in this chapter is in what situations may such a reference be
Law Library, Volume 18 legally possible and appropriate. There are three basic options for parties and, in the
(© Kluwer Law absence of a choice of law, for arbitrators, who are considering to apply or take into
International; Kluwer Law account general contract principles:
International 2008) pp. 23 - (1) use of general contract principles as a means of interpreting and supplementing the
28 applicable national law and the contract if and when appropriate; (121)
(2) application of a national law in conjunction with general principles of law
(concurrent laws), or application of general contract principles supplemented by
the law of a particular state; (122) and
(3) application of general contract principles at the exclusion of any national law. (123)
In practice, the most significant function of general contract principles has clearly been
their use as a means of interpreting and supplementing the applicable national law. (124)
In the past, the percentage of arbitral awards falling into the two other categories was
only marginal. (125)

II The Parties' Authority to Provide for the Application of General Principles

of Law
The parties' freedom to choose the law to be applied to the merits of their dispute is not
only generally accepted by national arbitration laws, but usually extends to rules of law
as well. In 1981, France deliberately chose to refer to the ‘rules of law’ rather than simply
to the ‘law’ in describing the subject matter of the parties' choice of the applicable
substantive law. This concept was adopted by the 1985 United Nations Commission on
P 25 International Trade Law (UNCITRAL) Model Law in Article 28(1) and, following that
example, by several modern arbitration laws, including those of the Netherlands,
Switzerland, Italy, Egypt, Mexico, Germany, and England. (126) The parties' choice of ‘rules
of law’, rather than simply a (national) law, is also recognized in the major institutional
arbitration rules. (127) The 1976 UNCITRAL Arbitration Rules in Article 33(1) only refer to
the ‘law designated by the parties … ’, but should be read in line with Article 28(1) of the
1985 UNCITRAL Model Law so as to include ‘rules of law’ and thus in particular general
principles of law as well. (128)
The general acceptance of the parties' authority to select ‘rules of law’ is also reflected in
the UPICC, which according to the Preamble are applicable ‘when the parties have
agreed that their contract be governed by general principles of law, the lex mercatoria, or
the like’. (129) UNIDROIT has also adopted a Model Clause to be used by parties wishing
to provide that their agreement be governed by the UPICC. (130) In order to address the
parties' possible concern that the UPICC might not cover all issues which may arise, their
attention is drawn to the option of, in addition, providing for the subsidiary application
of the law of a particular jurisdiction. (131)
The reference to ‘rules of law’ is now commonly understood as coded reference to legal
rules pertaining to notions of a transnational law, general principles of law (general
contract principles) or the lex mercatoria. More specifically, it may refer to rules of law
such as those contained in the CISG (which may not be applicable otherwise), the UPICC
or ‘the rules of law governing contractual obligations common to England and France’, as
in the Channel Tunnel case. (132)

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 The parties may therefore enter into an agreement that general principles of law (or
norms of international commerce, or lex mercatoria) are to govern their contract. (133)
Parties convey their intention that the contract be governed by transnational rules in a
variety of expressions which must, as the case may be, be interpreted so as to comply
with the parties' instructions. (134) Obviously, if an application is permissible of general
P 26 principles of law at the exclusion of any national law, the parties may also provide for
another form of application of general contract principles pursuant to the options set out
above.
General principles of law may also be applied where the parties have empowered the
arbitrators to act as amiables compositeurs to rule ex aequo et bono or ‘in equity’, i.e., to
decide on the basis of equitable considerations. (135) Furthermore, in the context of so-
called arbitration without privity, where states grant (private) foreign parties the right to
initiate international arbitrations against the state even if they have not signed any
arbitration agreement, the relevant national investment legislation, bilateral or
international treaty may provide that the dispute is to be decided according to general
principles of law. (136)

III The Appropriateness for the Parties to Select General Principles of Law
beyond Their Use As a Means of Interpreting and Supplementing a National
Law or the Terms of the Contract
General principles of law are still widely perceived as – at least to some extent – an
incomplete legal system which may not provide an answer to any legal question that
might be posed. (137) The statistics of the International Chamber of Commerce (ICC)
International Court of Arbitration for the last years show that in about eighty percent of
all cases there was a choice of law in favour of a national law, and only about one percent
of the ICC cases involved a choice of the general principles of law, lex mercatoria or
general practice of trade. (138) As seen above, if general principles of law are understood
as a flexible system defined by its sources, the risk that no clear answer may be found
P 27 with regard to a specific legal issue is precluded. (139) Yet depending on the legal
question at issue, the application of general contract principles may still be much more
burdensome than the application of a national system of law. Also, the lack of relevant
case law or scholarly writings generally affects the predictability of the outcome of a
dispute governed by transnational rules in a negative way. Accordingly, it may be difficult
for the parties and their advisers to evaluate their prospects of success.
It should be considered that it is not the whole corpus of law, but only certain specific
rules of law, that are likely to be relevant in a given dispute. (140) The difficulty, however,
is that it is obviously not possible to know in advance what the relevant disputes might
be. If the parties specifically refer to the UPICC or another soft law codification, they may
attain a somewhat increased predictability as to the outcome of a dispute. But again,
these sets of rules are (at least not yet) not all-comprehensive.
Whether or not the selection of general contract principles as the governing law makes
sense will depend on the particular circumstances. The following pros and cons may be
considered by the parties:
– General principles of law embody a quality standard: (i) they are independent from
any local standards, i.e., peculiarities of a particular national law, (141) and (ii) they
are especially adapted to the needs of international commerce.
– The choice of general principles of law is especially justified where neither party is
prepared to accept the other party's national law, and where the choice of the
national law of a ‘neutral’ third country (i.e., a country which has no connection with
the transaction) is not satisfactory or acceptable either. (142) Such a situation may
be especially present where a state or a state enterprise is involved, (143) or where
on one or both sides multiple parties are involved.
P 28
– The concern that a choice of general principles of law may provide for
unpredictable results has been considerably mitigated by the recent developments
of soft law codifications and elaborate lists of general contract principles.
Nevertheless, the determination of sufficiently defined standards under the general
principles of law method may in some situations still be very burdensome and can
require substantial additional expense both form the parties' counsel and the
arbitrators.
If the parties wish to select general contract principles as the applicable substantive law,
it may be advisable to provide for the application of a particular soft law codification,
especially the UPICC, and to determine what rules (e.g., the rules of a neutral national
law) are to be applied if the UPICC do not explicitly address a disputed issue.
In other circumstances, especially if a state or a state entity is a party to the contract,
and if that party does not wish to completely renounce the application of its own
national law, the parties may provide for a concurrent application of general principles
of law beside (complementing and supplementing) the relevant national law. The
purpose of such a choice would then be to ensure that an arbitral tribunal would not have
to apply the applicable national law if that law clearly departs from international

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 P 28 standards. (144)

References
116) See, e.g., Fouchard/Gaillard/Goldman, para. 1422 (p. 785); Redfern/Hunter, para. 2-
34. In particular, modern arbitration laws do not require a connection between the
law chosen and the transaction itself. As regards the impact of mandatory public
policy rules, see infra § 8.V.
117) See infra pp. 43 ff.
118) See, e.g., Redfern/Hunter, para. 2-40. About 80% of international contracts contain a
choice of law clause designating a national law (supra p. 17 at n. 91).
119) Redfern/Hunter, id.
120) Craig/Park/Paulsson, 333 and references there.
121) See infra pp. 28 ff., 48 ff.
122) See infra pp. 49 ff.
123) See infra pp. 24 ff., 51 ff.
124) See infra at p. 28 n. 145.
125) The choice of a transnational rules of law (general principles of law, lex mercatoria,
the general practice of international trade) by the parties amounted to only about
1% of the cases registered with the ICC International Court of Arbitration in 2000
(Mayer, ‘The Role of the UNIDROIT Principles in ICC Arbitration Practice’, ICC Bull.,
Special Supp. (2002): 108) and in 2005 (ICC Bull. (2006): 11). With regard to the time
period up to 1999, see Dasser, ‘Lex Mercatoria – Critical Comments on a Tricky Topic’,
Jusletter 6. Jan. 2003, paras 8 ff.; Dasser, ‘Internationale Schiedsgerichte und lex
mercatoria’ (1989).
126) See Fouchard/Gaillard/Goldman, para. 1431 (p. 791) and para. 1444 (pp. 802-04). See
also the comparative table in Poudret/Besson, 615.
127) ICC Rules, Art. 17(1); AAA Rules, Art. 28.1; LCIA Rules, Art. 22.3; WIPO Rules, Art. 59(a). As
regards the history of the ICC Rules see Derains, ‘Transnational Law in ICC
Arbitration’, 43-44.
128) Cf. Derains/Schwartz, 235-36.
129) See also Art. 1:101(3)(a) PECL. For examples where parties have agreed on the
application of the UPICC, see Bonell, ‘The UNIDROIT Principles and Transnational
Law’, 27-28.
130) The Model Clause states (Preamble of the UPICC (2004)): ‘This contract shall be
governed by the UNIDROIT Principles (2004) [except as to the Articles …] ’.
131) The respective Model Clause reads as follows (id.): ‘This contract shall be governed
by the UNIDROIT Principles (2004) [except as to Articles …], supplemented when
necessary by the law of [jurisdiction X]’.
132) See Craig/Park/Paulsson, 319; Derains/Schwartz, 235; Redfern/Hunter, para. 2-71.
133) See, e.g., Redfern/Hunter, paras 2-39, 2-57 ff.
134) For examples of expressions used by parties, see Fouchard/Gaillard/Goldman, para.
1446 (p. 805-06). To illustrate, in the award in ICC Case No. 7110 of 13.07.1995 (UNILEX;
also reported by Crawford/Sinclair, ICC Bull. Special Supp. (2002): 59), none of the
disputed contracts contained a choice of law clause in favour of a domestic law,
though some contained provisions referring to settlement according to ‘natural
justice’. The arbitral tribunal, by majority, decided that the reference to ‘natural
justice’ indicated that the parties intended to have their contracts governed by
general principles of law, which are primarily reflected in the UPICC.
135) See, e.g., Fouchard/Gaillard/Goldman, paras 1500 ff., 1505; Bucher/Tschanz, 127;
Lalive/Poudret/Reymond, 401; Redfern/Hunter, para. 2-73; Berger, International
Economic Arbitration, 564 ff. The power to decide in equity where the parties have
expressly provided so is widely recognized; see Art. 28(3) of the UNCITRAL Model
Law, Art. 1497 NCCP; Art. 187(2) PILS; Section 46(1)(b) English Arbitration Act 1996;
further references in Fouchard/Gaillard/Goldman, para. 1501 (p. 835), n. 162.
136) See in particular Art. 26(6) of the 1994 Energy Charter Treaty which provides that
disputes must be decided ‘in accordance with this Treaty and applicable rules and
principles of international law’ (<[Link]/>; Craig/Park/Paulsson, 669 and
references there; for the ICSID Convention see infra p. 49).
137) See, e.g., Craig/Park/Paulsson, 333 (see also at 319): ‘[N]either general principles of
law nor trade usages present a complete system of law.’
138) See the references supra at n. 125.
139) Supra pp. 12 ff.
140) E.g., an international contract for the sale of goods or a construction contract will
principally only involve consideration of the relevant special area of law
(Redfern/Hunter, para. 2-57).

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 141) The appeal of an application of general principles of law has been explained in the
award made in ICC Case No. 8385 of 1995, J.D.I. (1997): 1061 ff.: ‘Application of
international standards offers many advantages. They apply uniformly and are not
dependent on the peculiarities of any particular national law. They take due
account of the needs of international intercourse and permit cross-fertilization
between systems that may be unduly wedded to conceptual distinctions and those
that look for a pragmatic and fair resolution in the individual case.’ See also
Gaillard, Arb. Int. 17 (2001): 59, 68-70.
142) Cf. Gaillard, Arb. Int. 17 (2001): 70, noting that in case of an agreement by the parties
in favour of general principles of law, ‘the predictability of the outcome is to be
assessed in comparison with the parties' other option of remaining silent on the
applicable law’.
143) See Crawford/Sinclair, ICC Bull., Special Supp. (2002): 57 (‘The non-state party may
be reluctant to submit to local law; the state party will be equally reluctant to
submit to foreign law. Hence the contract may lack a choice of law clause entirely,
or it may refer to such vague constructs as ‘general principles’); Gaillard, id., at 70
(‘When dealing with a sovereign State, there is no doubt that the ‘ordinary
businessman’ would favour transnational rules or, at a minimum, transnational rules
tempering the laws of that sovereign State, over the laws of that sovereign State
alone.’).
144) See infra pp. 49 ff. For an example, see award in ICC Case No. 7365 of 5 May 1997, Unif.
L. Rev. (1999): 796 ff., UNILEX, Bonell, ‘The UNIDROIT Principles and Transnational
Law’, 32-33.

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Document information Chapter 2: Scope of Application of General Contract
Principles, Section 4: Choice of Law Agreement Providing
Publication for the Application of a National Law
Force Majeure and
Hardship under General I Interpreting and Supplementing the Applicable National Law and the
Contract Principles: Terms of the Contract by General Contract Principles
Exemption for Non-
performance in A Introduction
International Arbitration
The use of general contract principles as a means of interpreting and supplementing the
applicable domestic law is illustrated by the fact that by far the largest number of all
Bibliographic reference reported decisions by state courts and arbitral awards that include a reference to the
UNIDROIT Contract Principles have used the UPICC to this end. (145) In their Preamble,
'Chapter 2: Scope of P 29 the UPICC (2004) explicitly states that they ‘may be used to interpret or supplement
Application of General domestic law’. (146) Indeed, in some way or another, legal writers and arbitral tribunals
Contract Principles, Section have widely acknowledged that the UPICC may be used as a means of interpreting and
4: Choice of Law Agreement supplementing the applicable national law. (147)
Providing for the
Application of a National The practical significance of this use of general contract principles may be explained by
Law', in Christoph Brunner , the notion that international contracts should be construed so as to adequately take
Force Majeure and account of the transnational context of the transaction. It may generally be assumed that
Hardship under General parties to an international contract, especially if it includes an arbitration clause, expect
Contract Principles: the applicable domestic law to be applied ‘with a broader-brush and with an eye to
Exemption for Non- established international usage and the need to accommodate particular factors that are
performance in peculiar to transactions involving a foreign element’. (148)
International Arbitration, While the terms of the contract must be applied within the framework of the applicable
International Arbitration law, they prevail over any non-mandatory provisions of the applicable law and are
Law Library, Volume 18 therefore the primary ‘law’ of the parties. The interpretation of commercial contracts is
(© Kluwer Law one of the most important subjects in practice. (149) Commercial contracts are in many
International; Kluwer Law respects ‘self-sufficient’ in that they address a great deal of subject matters often in a
International 2008) pp. 28 - very detailed manner. The approach to focus primarily on an interpretation of the
43 contract itself has been significantly promoted by Anglo-American contract drafting
techniques, according to which international contracts usually constitute comprehensive,
multi-page arrangements allowing for the resolution of legal conflicts solely (or almost
solely) on the basis of the contractual stipulations contained therein. (150) Contractual
clauses are to be construed in accordance with the applicable canons, rules and means
of contract interpretation of the applicable national law. However, in the same way that
arbitral tribunals are authorized to interpret and supplement the applicable national
law by general contract principles, they should equally be authorized to use them as a
means of interpreting and supplementing the terms of international commercial
P 30 contracts. (151) In both situations, this use of general contract principles is justified by
the specificity of international commercial contracts and international arbitration in
particular. (152) In order to establish the parties' intentions with regard to a particular
contractual clause, there may in fact be situations where it will be more appropriate to
take into account general contract principles rather than the relevant rules of the
applicable domestic law, which may not be specifically adapted to international
transactions.
In international arbitration, the significance of contractual and statutory interpretation
has increased in recent years, as there has been a significant convergence and
internationalization of the legal method of judicial decision and lawmaking in civil law
and common law jurisdictions. (153) To illustrate, in common law, the more or less strictly
applied ‘literal rule’ or ‘plain meaning doctrine’ of statutory construction has been
largely abandoned in favour of the ‘purposive approach’ (as understood in civil law). (154)
Similarly, the formal approach adopted in common law with regard to contract
interpretation as especially evidenced by the ‘parol evidence rule’, seems to fade. (155)
On the other hand, in civil law, the status of judicial law making has become increasingly
important, and the time when the judge was only meant to mechanically apply the
pertinent statutory provision to a certain set of facts has passed. Judicial lawmaking,
involving a rather extensive interpretation and specification of the applicable statute, is
increasingly common and accepted in scholarly writings. (156) This phenomenon can in
part be explained by the convergence of the legal methodology of decision-making, i.e.,
the reception of the common law concepts of ‘case law’ and ‘reasoning from case to case’.
P 31 (157) Open-ended rules such as the force majeure and hardship concepts are, of course,
particularly susceptible to judicial lawmaking.
The weight to be given to general principles as a means of interpretation and gap-filling
(158) – be it of the contract itself or the applicable national law – is not the same in every
case, nor should it be in light of its ultimate justification as a matter of the parties'
reasonable and legitimate expectations. (159) This approach conforms with the principle
recognized in many countries that there is no specific hierarchy among the different
means of interpretation under a specific national law, both with regard to the
construction of contracts and to the statutes. (160) Accordingly, the reliance of a party
that may have chosen a certain national law for the very reason that this law's rules

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 provide a rigid solution for a specific issue of the contract is not put at risk. (161) Such a
party may ask the other party that the choice of law clause be completed by a ‘strict law
clause’, providing that the arbitral tribunal must strictly adhere to the specified national
law, including the relevant precedents, and have no recourse to any considerations of any
other law, transnational or equity. (162) But even in the absence of such a clause, a
party's legitimate interest in a strict application of a domestic law may have to be given
due weight where the circumstances, for example, the parties' preliminary negotiations,
suggest that the other party must reasonably be deemed to have accepted a strict
application of the applicable domestic law.
There are essentially two legal foundations on which the use of general contract
principles as a means of interpreting and supplementing domestic law or commercial
P 32 contracts may be based: the first is based on the applicable national law itself, which
may allow a comparative method of construction. The second legal foundation is
independent from a particular national law, and is rooted in the specificity of
international commercial transactions, especially in the context of international
arbitration.

B Comparative Method of Construction under the Applicable Domestic Law

The applicable national law itself may empower courts or arbitral tribunals to interpret
and supplement the national law by general contract principles. Many national systems
of law allow a comparative method of construction. (163) The gap-filling function of
general principles of law, in particular, is explicitly recognized in numerous national laws
such as Swiss law, (164) Austrian law, (165) Italian law, (166) Spanish law (167) and,
following its model, a number of South and Central American States, (168) as well as in
the US Uniform Commercial Code. (169) The reference to general principles of law is
understood by at least some of the domestic laws named above in the sense of the
general principles on which the relevant national legal system is based. They are, i.e.,
‘internally derived’, and not ‘external’ or universal general principles. However, the
‘external’ or comparative law approach is also adhered to in many countries (170) and
may be expected to become increasingly significant in view of the ongoing developments
of unification of private law within the European Union (171) and elsewhere. The
comparative method of gap-filling is not limited to ‘official’ foreign law sources but may
also revert to soft law, especially the UPICC or the Principles of European Contract Law
(PECL). (172)
P 33

C Autonomous Basis: Specificity of International Transactions and International

Arbitration in Particular – Application of the Domestic Law with a ‘Broader Brush’
The ‘autonomous’ legal basis supporting the use of general contract principles as a
means of interpreting and supplementing international contracts is above all rooted in
the specificity of international commercial transactions, that is, in the postulate that the
interpretation of international contracts requires recognition of the transnational context
of the underlying transactions. (173) The use of general contract principles for
interpretation purposes gives meaning to the specificity of international commercial
contracts.
In addition, the notion of the specificity of international commercial arbitration implies
an awareness that international arbitration is to be distinguished from national or
domestic arbitration or litigation before state courts, and that it should therefore be
separated and freed from local procedures and percep-tions. (174) To the extent
possible, the application of so-called local standards, i.e., rules of the applicable
domestic (local) law which are in evident contradiction with generally accepted
standards, should be avoided. This has particularly been recognized for local standards
which are part of the applicable arbitration law (lex arbitri) and local standards at the
enforcement stage. (175) Similar considerations apply with regard to the applicable
substantive law. (176) The (conflict of laws) rule of the lex arbitri, (177) which determines
the applicable substantive law, should be interpreted so as to permit the use of general
principles of law as a means of interpretation and gap-filling of the applicable national
law or the terms of the contract. In international arbitration, the comparative approach
to decision-making is widely acknowledged. (178) Besides, the same rationale applies in
the field of uniform law, where the ‘nationalization’ of uniform rules by national courts is
to be avoided so as to respect the international character of these rules. (179)
P 34
Given the above, it may be appropriate for arbitral tribunals to apply the applicable
domestic law with a ‘broader brush’. (180) Arbitrators will thus often exercise a certain
discretionary power when applying a particular national law or adapting it to the
prevailing circumstances of the case. (181) The method of interpreting and supplementing
the applicable domestic law or the terms of the contract by means of general contract
principles may serve as a useful tool in the implementation of the ‘broader-brush’
approach. For example, where parties of different nationalities select a neutral law of a
third country (e.g., a Korean and a US party select Swiss law as the applicable law), the
counterpart of the positive choice of law (Swiss law) is a limited implied ‘negative choice’

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 with regard to the parties' own domestic laws (Korean and the relevant US state law),
(182) as both parties typically intended to avoid the application of the other party's
national law.
The ‘broader-brush’ approach has been maintained by Goode in his article with the
meaningful title ‘The Adaptation of English Law to International Commercial Arbitration’:
(183)
What, then, do such parties [contracting parties carrying on business in
different States who have chosen the law of a third State to govern their
contract and the arbitration proceedings] expect when they come to arbitrate
in a foreign land? One thing they may reasonably expect is that the arbitrator
will have regard to the international character of the transaction. They may
have chosen English law, but does that mean English law as applied in all its
detail to domestic transactions? An international transaction is not the same
as a domestic transaction and a dispute between two foreigners is not the
same as a dispute between two Englishmen. We can reasonably suppose that
when they invoke English law, they envisage English law applied with a
broader brush and with an eye to established international usage and the
need to accommodate particular factors that are peculiar to transactions
involving a foreign element.
The above view is shared by many other international practitioners. The proposition that
the ‘broader-brush’ approach may be addressed by the use of general contract principles
for interpretation purposes seems also to be supported by the closing remarks of Lord
Mustill in his famous analysis of the lex mercatoria: (184)
I would not wish to end in such a negative vein. (…) What is important is that
the arbitrator keep constantly in mind that he is concerned with international
P 35 commerce, with all the breadth of horizon, flexibility, and practicality of
approach which that demands. In keeping these features constantly in the
public eye, the mercatorists perform a most valuable function.
However, on the one hand, especially in English law there is traditionally a deep-rooted
orientation towards formal reasoning and bright-line rules. Influential commentators and
practitioners in Britain have maintained that this approach is precisely why commercial
parties still choose English law and forums to resolve their cross-border disputes. (185)
On the other hand, some practitioners even go a step further. For example, Hirsch has
pointed out that arbitral awards do not necessarily reflect all considerations made by
the arbitrators, especially in cases where the tribunal consists of arbitrators from
different legal systems and cultures. He goes on by saying that ‘such tribunals often base
their discussions de facto on transnational law – despite a choice of law clause in a
contract’, and will then draft the reasons of the award under the applicable domestic law
in accordance with the conclusions reached during the deliberations. (186)
Yet if the applicable law is a national law and not some kind of transnational law, the
above explained approach should not be followed. It does not properly respect the
parties' instructions to apply the specified national law. While an award that adopts that
approach is outwardly based on strict legal consideration, the arbitral tribunal in fact
allowed itself to be guided by concealed considerations of an undisclosed and
unspecified ‘transnational law’. Even though it may only be a matter of degree, it could
even be said that from the parties' perspective, such an award is in effect based on
concealed equitable considerations. (187) In practice, however, this could hardly be
proven, and the possibility to set aside such an award on the grounds of a violation of the
public policy is therefore usually only of a theoretical nature. (188)
In any event, any true material considerations of the award should not be concealed.
Instead, the award's considerations should make clear that the applicable national law
was construed in a particular manner, for example in the light of general contract
principles.
P 36

D Distinguishing between the Concept of International Trade Usages and General

Principles of Law
Under the UNCITRAL Model Law (189) and all national arbitration laws inspired by it, (190)
as well as under different international arbitration rules, (191) arbitral tribunals are
instructed to take into account international trade usages ‘in all cases’, that is, even
where the parties have expressly chosen the law governing the dispute. (192) Article 9(2)
CISG and Article 1.8(2) UPICC also provide for the application of international trade
usages. According to the predominant view expressed by legal authorities, ‘trade usages’
include only the practices usually followed in a particular business sector, (193) and not
rules of law derived from comparative law or other international sources as well. (194) A
practice is generally followed if commercial men regard themselves as bound to follow it
in the absence of a clear stipulation to the contrary, because either in a codified or in an
inexplicit form it is tacitly incorporated into the contract. (195) Accordingly, the fact that

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 such practices must be taken into account in all cases does not enable arbitrators to
ignore the applicable law, i.e., to substitute a general contract principle for a rule of the
applicable domestic law.
Thus, arbitral tribunals should not infer from the concept of trade usages that the
P 37 applicable national law may be supplanted by general principles of law. (196) In the
award in ICC Case No. 9029, the arbitral tribunal rightly noted that ‘recourse to the
[UNIDROIT] Principles is not purely and simply the same as recourse to an actually
existing international commercial usage’. (197) In the award in ICC Case No. 8873, the
Tribunal took the same approach and held that the provisions of the UNIDROIT Contract
Principles on hardship do not correspond, at least for the time being, to current practices
in international trade. (198)
Whereas general contract principles cannot be characterized as international trade
usages which are applicable as an implied contractual term, their use as a means of
interpreting the applicable law or the terms of the contract should be covered by the
notion of international trade usages. (199) For example, with regard to arbitral case law,
which in international arbitration is an important source for giving content to a general
contract principle, Craig, Park and Paulsson have noted: (200)
[I]t is difficult to point to a dispositive ‘usage’ when one party invokes a legal
characterization of a situation (such as the neutralization of contractual duties
due to an event of force majeure) which is challenged by the other. It is here
that international arbitral awards may be seen to generate rules; the ‘usage’
with respect to international contracts is that engendered by the existence of
a body of arbitral precedents which may fairly be considered to fall within the
scope of the settled and reasonable expectations of parties to international
contracts. In this sense, ‘usages’ may evolve into a type of customary law of
international contracts, and it may be seen as creating useful and legitimate
norms in the absence of contrary indications of otherwise applicable national
law.
However, it must always be kept in mind that the normative effects of such a usage must
not go beyond the limits of contract interpretation and gap-filling, i.e., the general
principles of law method cannot be used to overrule the terms of the contract or the
applicable domestic law.
P 38

E Limits of the Use of General Contract Principles As a Means of Interpreting

Domestic Law or the Terms of the Contract
The use of general contract principles to interpret or supplement domestic law requires
that it be ambiguous and given to interpretation. In countries where virtually all possible
legal issues are covered by case law or scholarly writings, the focus will usually lie more
on interpretation and less on gap-filling. It has rightly been pointed out that ‘[i]t should
not prove too difficult to find ambiguities in the law in countries where there are many
active scholars’. (201) In countries with a comparatively less sophisticated legal system
and a relative lack of statutes and published case law, general contract principles may to
a greater extent be called upon to interpret open-ended rules or general concepts, or to
supplement domestic law. There appears to be nothing discriminatory about this.
General contract principles may be used to interpret or supplement domestic law
irrespective of whether the law of an industrialized, western, an emerging or a developing
country applies, as long as it leaves room for interpretation or gap-filling. (202) In any
event, the empirical data regarding cases referring to the UPICC illustrate that ‘even
highly sophisticated legal systems do not always provide clear and/or satisfactory
solutions to the special needs of current international commercial transactions’. (203)
The proposition that arbitrators, in order to respect the choice of law made by the
parties, should necessarily fill the gap of the applicable national law, not by ‘general
principles drawn from a variety of other legal systems’ but by ‘reasoning by analogy or
resorting to the general principles of their own legal system’, cannot be accepted, at least
not in the absence of an explicit or implicit ‘strict law clause’. (204) To be sure, the said
use of general principles of law is only one means of interpretation and gap-filling among
others, such as, for instance, the presumed intentions of the parties or a reasoning by
analogy to certain rules of the applicable domestic law. But in view of the specificity of
international contracts and the reasonable expectations of the parties that the
applicable domestic law is applied with a broader-brush, it is appropriate to give a
certain weight to the use of general contract principles as a means of interpreting and
supplementing domestic law.
Thus, an examination is required to determine whether it can be reasonably found that
the relevant domestic law or the terms of the contract can be interpreted or
supplemented. In particular, the terms of the contract or the choice of the applicable law
P 39 should not simply be circumvented on the grounds that they are incomplete, unless it
is sufficiently established that a gap does in fact exist in the contract or the applicable
law. (205)

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 F The Practical Significance of Interpretation and Gap-Filling of Domestic Law in the
Light of the ‘Force Majeure’ and ‘Hardship’ Exemptions
Interpretation and judicial law making takes on a very important function in connection
with the application of open-ended rules including general clauses or blanket formulas
which confer broad discretionary powers to the judge. The rules of national laws dealing
with force majeure and hardship are generally very open ended, and this is often
similarly true for contractual force majeure and hardship clauses. Thus the use of general
contract principles to interpret the applicable domestic law or the terms of the contract
in this area of law generally appears to be of great practical significance. While the
provisions of the CISG, UPICC and PECL on force majeure and hardship are also quite open
ended, more detailed rules may be established on the basis of the different groups of
cases. Thus, in as much as the concept or a particular requirement of force majeure or
hardship of a national law is comparable to the relevant concept or requirement under
general contract principles, the latter (including the different groups of cases) may be
used to interpret or supplement the former.
The relevance of the use of general contract principles in interpreting domestic laws in
situations of ‘force majeure’ may be illustrated by reference to German law. Under the
BGB as amended in 2002, the fault principle still serves as the theoretical legal
foundation for determining whether a claim for damages is excluded in case of the
obligor's non-performance. (206) However, as will be seen below, the practical
consequences under the fault principle are not significantly different than under the
concept of strict liability coupled with a general force majeure excuse under general
contract principles. (207) In addition, the German law reform has also acknowledged that
there are instances where the fault is not a ‘guiding principle’ which may help a
practitioner to evaluate a particular case. § 276(1) BGB (old version) merely stated that
the obligor is responsible for fault either in the form of intention or of negligence, unless
something else is specifically provided in the contract. The new rule, however, specifies
that in addition to the obligor's responsibility for fault, it may also be liable without fault
if a stricter type of liability is to be inferred from the assumption of a guarantee or of the
risk to be able to procure the object in question (acquisition risk, especially in case of
generic obligations). The revision of § 276 BGB was primarily intended to clarify the law,
but to some extent also brings the concept of German law closer to that applicable under
P 40 general contract principles. (208) As noted by Zimmermann, ‘the way in which the new
rule is drafted leaves much leeway for a flexible adjustment of the standard of liability’.
(209) Thus, to the extent that the individual criteria and groups of cases under the force
majeure excuse provide useful guidelines to determine whether the obligor should be
held liable for its non-performance under German law, courts and arbitral tribunals
should be allowed to take such principles into account.
The flexibility of interpretation of open-ended provisions dealing with force majeure and
hardship may be illustrated with regard to the hardship concept by the Dutch experience
regarding the introduction of the New Dutch Civil Code (NBW) of 1992. In 1984, the Hoge
Raad applied the test of Article 6:258 NBW regarding change of circumstances before its
enactment ‘by way of anticipation’. As this provision was not yet in force at the time when
the case was decided, the court ‘technically’ applied the old Code's good faith test
(blanket clause), but interpreted it in such a way that it encompassed the new change of
circumstances-test as well. (210)
More specifically, the UPICC were used to interpret domestic law in a case before the
Berlin Court of Arbitration, the successor of the Arbitration Court of the Chamber of
Foreign Trade of the former German Democratic Republic. (211) The hardship provision of
the then Draft UPICC was cited as an expression of international commercial practice,
serving as an additional argument to justify hardship and its consequences under the
General Conditions of Delivery of Goods between Organizations of the Member Countries
of the Council for Mutual Economic Assistance, which did not contain hardship provisions.
(212)
The 1996 award in ICC Case No. 8486 is a further example of the use of the UPICC as a
means of interpreting the applicable domestic law on hardship. (213) A Dutch seller
concluded a contract for the fabrication and installation of a machine for the production
of lump sugar with a Turkish buyer. The law applicable to the contract was Dutch law.
After the conclusion of the contract the Turkish buyer refused to pay the agreed amount
of the advance payment, invoking financial difficulties due to a sudden drop in the
market demand for lump sugar. After the parties' failure to agree on a revision of the
contract, the Dutch seller declared the contract terminated and claimed damages from
the Turkish buyer. In its defence, the latter invoked hardship under Article 6:258 NBW as
grounds for relief. In rejecting this argument, the tribunal stressed the exceptional
P 41 character of hardship, which requires a fundamental alteration in the original
contractual equilibrium. In confirmation of this conclusion, the tribunal referred not only
to the applicable Dutch law, but also to the hardship provisions of the UPICC. The
reference to the latter was justified by the argument that in applying Dutch law to an
international context, attention should be given to the prevailing view in the field of
international commercial contracts. The Tribunal stated that ‘[t]he necessity and
admissibility of interpreting national law in the light of the UNIDROIT Principles has also
been specifically advocated for Dutch law’, and noted in particular that when

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 interpreting the provisions on hardship and force majeure contained in the new Dutch
Civil Code, Dutch judges should draw inspiration from the UPICC. (214)

II Interpreting and Supplementing International Uniform Law Instruments

with General Contract Principles, in Particular the CISG
The method of interpreting and supplementing international uniform law instruments
with general contract principles fulfils the important function of avoiding the dilution or
‘nationalization’ of international uniform law upon application within a domestic legal
system and exposure to the traditional methods of construction of that particular
jurisdiction. (215) Uniform law is to be interpreted ‘autonomously’, so as to carry out its
underlying purpose, without regard to the lex fori or the national law at the place of
arbitration.
According to the Preamble of the UPICC, ‘[t]hey may be used to interpret or supplement
international uniform law instruments’. It has been widely discussed whether the UPICC
may be applied as general principles within the framework of the CISG. Article 7(2) CISG
provides for the application of general principles on which the Convention is based for
the purpose of filling gaps with regard to matters not excluded from its scope. (216) More
recent conventions concerning issues of private law have adopted the same formulation.
(217)
Basically, a particular general principle can only be applied within the framework of the
P 42 CISG if it is expressed in the Convention itself or results from it with sufficient clarity:
(218) There is wide support for the view that the UPICC are to be considered additional
general principles with regard to matters dealt with by the CISG. (219) Magnus has noted:
(220)
The most important reason for this is that they vastly correspond both to the
respective provisions of the CISG as well as to the general principles which
have been derived from the CISG. In light of the fact that the CISG basically
was the force behind the ‘Principles’, this correspondence is not surprising.
Further, the approach in developing the ‘Principles’ appears appropriate with
respect to the current state of attempts to unify law. The CISG provides a basic
set of rules which has resulted from an intensive comparison of legal systems
and politically supported compromises between these legal systems.
Therefore, the CISG can and should constitute the basis for the creation of a
general law of contracts. Its provisions are to be generalized only to
supplement new issues and solutions and align these issues and solutions with
the needs of the industry. The UNIDROIT working group has proceeded with
this concept in mind. Thus, its results, to the extent that they formulate
general principles which cannot be derived directly from the CISG, can be
utilized for filling gaps in the Convention.
In practice, domestic courts and arbitral tribunals have generally taken a favourable
attitude towards the UPICC as a means of interpreting and supplementing the CISG or
other international uniform law instruments. (221)
In the present context, it will been seen that the force majeure excuse of the UPICC and
PECL constitutes merely a slightly amended version of Article 79 CISG. The significance of
an interpretation of the CISG in the light of general contract principles therefore does not
stem from the relevant provisions of the UPICC/PECL, but from the insights to be derived
from a comparative law analysis relating to the individual elements of the force majeure
excuse.
As regards the hardship concept provided for in the UPICC/PECL, the relationship
between these soft law codifications and the CISG is of particular interest. As the CISG
does not explicitly provide for such an exemption, it is questionable whether the concept
P 43 of the CISG fits with the hardship concept of the UPICC/PECL. As will be shown below,
the silence of the CISG regarding the hardship concept does not exclude its
characterization as a general contract principle. However, it supports the proposition
P 43 that the exemption must be construed narrowly. (222)

References
145) See UNILEX under the category ‘cases grouped by articles and issues’, ‘preamble’;
Bonell, ‘The UNIDROIT Principles and Transnational Law’, 38. For an example, see
the award in ICC Case No. 8486 of 1996, Y.B. Com. Arb. 1999, 162-173, J.D.I. (1998): 1047-
1049, with note Derains. See also Mayer, ‘The Role of the UNIDROIT Principles in ICC
Arbitration Practice’, ICC Bull., Special Supp. (2002): 108, 114-17.
146) Preamble, para. 6. The 1994 version of the UPICC did not yet mention that they might
be used for this purpose. With regard to the TLDB-Principles it is also explicitly
noted that they may be used ‘as a means to allow for the “internationally useful”
construction of domestic law in international disputes’ (TLDB website).

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 147) See (all with further references) Bonell, ‘International Restatement’, 224 ff.; Bonell,
‘The UNIDROIT Principles and Transnational Law’, 37-38; Berger, The Creeping
Codification of the Lex Mercatoria, 183 ff.; Berger, Am. J. Comp. L. 46 (1998):129, 138 ff.;
Canaris, ‘Die Stellung der “UNIDROIT Principles” und der Principles of European
Contract Law’ im System der Rechtsquellen, 29-31; Dessemontet, Use of the
UNIDROIT Principles to Interpret and Supplement Domestic Law, 39, 47 ff.; Horn,
‘Contract Law of International Trade and Finance’, 76. As stated by Berger (ICLQ 50
[2001]: 879), the UPICC and PECL ‘open the door for a new era of dynamic statutory
interpretation, i.e., an interpretation of domestic law in the light of the
Restatements’.
148) Goode, Arb. Int. 8 (1992): 1-16.
149) See, e.g., Staughton, Asian Dispute Review 1 (2000): 19.
150) See Berger, The Creeping Codification of the Lex Mercatoria, 101, citing Schlosser,
RIW (1982): 867. Berger (id.) also notes that ‘[i]t is this particular nature of
international contracts which makes vast parts of domestic law inapplicable or
useless in the international context.’
151) See Redfern/Hunter, para. 2-66 (3rd ed. 1999): ‘[I]n practice, arbitral tribunals may
refer to the UNIDROIT Principles as an aid to the interpretation of contract terms
and conditions. … In this way, the UNIDROIT Principles could acquire an authority in
international commercial business that is independent of any adoption of them by
the parties to the particular contract in issue.’
152) See infra pp. 33 ff.
153) See Zweigert/Kötz, 256 ff.; Kramer, Konvergenz und Internationalisierung der
juristischen Methode, 71 ff.; Berger, ‘Harmonisation of European Contract Law’, ICLQ
50 (2001): 884 ff.
154) Zweigert/Kötz, 266 ff.; Kramer, id., at 74 ff.; Honnold, para. 89 (p. 91).
155) The ‘parol evidence rule’, which seeks to preserve the integrity of written
agreements by refusing to permit the parties to attempt to alter the import of their
contract by using contemporaneous oral declarations, is now subject to significant
exceptions (see § 202-2 UCC and the Official Comment). The English Law Commission
has pointed out that there are so many exceptions now that the ‘rule’ barely exists,
and has recommended its abolition (Honnold, para. 110 at p. 121). The parol
evidence rule is inconsistent with Art. 8(3) CISG. Also, while Art. 8(3) CISG and
similarly § 2-208 UCC allow due consideration for conduct subsequent to the
agreement, English case law has been hostile to evidence of subsequent conduct.
However, this approach has met criticism (Honnold, id., at para. 111). By comparison,
civil law traditionally takes a much more liberal approach. The Swiss Federal
Tribunal has held that even if the wording of a contractual clause ‘clearly’ supports
a certain interpretation, it must be examined whether this interpretation is not
excluded and superseded by other means and rules of interpretation (BGE 127 III
444, 445 [2001]).
156) See, e.g., Stoffel, Tul. L. Rev. 75 (2001): 1195, 1209 ff.; for Switzerland, H.P. Walter, recht
2003, 2 ff.; for the Netherlands, Hartkamp, Am. J. Comp. L. 40 (1992): 551 ff.; Hondius,
25.
157) See Kramer, Konvergenz und Internationalisierung der juristischen Methode, 78. It
may further be explained by the accelerated industrial and technical development
which affects commercial law, and the aging of European civil law codifications
(Zweigert/Kötz, 268).
158) There is only a gradual difference between the process of contract interpretation
and that of filling gaps (Zweigert/Kötz, 405; Wiegand, in Basler Kommentar, Art. 18 CO
para. 59; see also Art. 4.8 UPICC and Official Comment No. 1; Junge, in Schlechtriem
(1998), Art. 8 CISG para. 3). The latter is also referred to as constructive
interpretation (‘ergänzende Auslegung’). When the parties have neglected to specify
a particular point, either because they preferred not to deal with it or simply
because they did not foresee it, the problem is how to fill the resulting gap or
omitted term. Taking account of the expectations of the parties and the particular
nature of the contract, the gap will have to be supplied by judge-made law on the
basis of the parties' ‘hypothetical’ intentions or by merely applying a rule of the
applicable law (cf. Zweigert/Kötz, 405-408).
159) See Craig/Park/Paulsson, 637.
160) See generally Zweigert/Kötz, 408-09.
161) See also Bonell, in Summary of Discussions, in Berger (ed.), The Practice of
Transnational Law at 118.
162) Cf. Sandrock, J. Int. Arb. 11 (1994): 35, 50 ff. Especially banks involved in loan
agreements have voiced – according to Sandrock unfounded – the fear of equitable
arbitral awards. Banks have frequently taken the view that while it can be certain
that state courts will make their decision strictly according to the applicable law, it
cannot be excluded that in arbitration, even where the legal situation is without
uncertainties and where the parties have not authorized the arbitral tribunal to
render an award ‘in equity’, equitable considerations may influence the decision.
163) On this concept see the seminal article by Zweigert, Rechtsvergleichung als
universale Inter-pretationsmethode, RabelsZ 1949/50, 5 ff.; see also Zweigert/Kötz,
18 ff.; Berger, The Creeping Codification of the Lex Mercatoria, 24-26, 183 ff.

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 164) See Art. 1(2) and (3) of the Swiss Civil Code; Kramer, FS Bydlinski, 211 (referring to the
very internationally minded Swiss case law); id., Konvergenz und
Internationalisierung der juristischen Methode, 82.
165) § 7 ABGB (‘natürliche Rechtsgrundsätze’); see generally Kramer, FS Bydlinski, 206 ff.
166) Art. 12(2) of the Italian Codice Civile (‘principi generali dell ‘ordinamento dello Stato’).
167) Art. 1(4), (1) of the Spanish Códico Civil (in its version of 1973/74) (‘principios
generales del derecho’).
168) See Kramer, FS Bydlinski, 207 and references there. For example, according to Art. 4
of the Introductory Law to the Civil Code of Brazil, gaps in domestic private law may
be filled by ‘analogy, the usages or general principles of law’. While such general
principles are to be ascertained by comparative law, the main source of inspiration
has been French law (Drobnig, The Use of Comparative Law by Courts, 7).
169) § 1-103 UCC (‘Supplementary General Principles of Law Applicable’).
170) Kramer, FS Bydlinski, 208-09, especially with reference to Austrian, Italian and
Spanish law.
171) See supra p. 2 at n. 7.
172) Kramer, FS Bydlinski, 211; id., Konvergenz und Internationalisierung der juristischen
Methode, 82 ff.
173) Craig/Park/Paulsson, 634-35.
174) See, e.g., Blessing, Introduction to Arbitration, para. 362.
175) Depending on the modernity and international character of the relevant arbitration
statute and the construction it is given by the competent state courts, international
arbitral awards should preferably not be set aside by the courts at the place of
arbitration on the grounds of local standards. Within the scope of the NY
Convention, the so-called ‘local standard annulments’ at the place of arbitration
should be disregarded by the court at the place of enforcement
(Fouchard/Gaillard/Goldman, para. 1595).
176) See Blessing, ‘Introduction to Arbitration’, para. 362 (‘[S]pecificity in this sense does
not just relate to formal matters; an international arbitral tribunal is clearly also
distinguishable from state justice in its substantive law approach to a given
dispute.’).
177) E.g., Art. 28 of the UNCITRAL Model Law or Art. 187 PILS.
178) See Sandrock, RIW (1992): 785, 794; Berger, International Economic Arbitration, 355 ff.
179) See especially Art. 7(1) CISG. Accordingly, national courts should refrain from
importing their own, nationally-coloured conceptions into uniform rules.
180) Goode, Arb. Int. 8 (1992): 1-16. On this subject see also Mayer, ‘Reflections on the
International Arbitrator's Duty to Apply the Law’, Arb. Int. 17 (2001): 235 ff.
181) See Patocchi/Favre-Bulle, Sem. Jud. (1998): 579.
182) Id., at 579 (noting that the selection of Swiss law as a neutral law of a third country
has a very pronounced negative connotation).
183) Goode, Arb. Int. 8 (1992): 2-3.
184) Mustill, ‘The New Lex Mercatoria’, Arb. Int. 4 (1988): 118-19.
185) Book Review:Nottage, ‘The Practice of Transnational Law’, J. Int. Arb. 19 (2002): 67, 68.
According to the empirical enquiry conducted by CENTRAL in 1999, the sub-set of
British respondents reported statistically higher perceived risks, and lower benefits,
in using transnational law principles (id., at 68 and
Berger/Dubberstein/Lehmann/Petzold, 202).
186) Hirsch, in Summary of Discussions, in Berger (ed.), The Practice of Transnational Law
at 124.
187) Sandrock, J. Int. Arb. 11 (1994): 33, 52.
188) But see Sandrock, id.
189) Art. 28(4) of the UNCITRAL Model Law states as follows: ‘In all cases, the arbitral
tribunal shall decide in accordance with the terms of the contract and shall take
into account the usages of the trade applicable to the transaction.’
190) See, e.g., Art. 1496 NCPC; Art. 1054(4) of the Netherlands Code of Civil Procedure; Art.
1051(4) of the German ZPO.
191) See, e.g., Art. 33(3) of the UNCITRAL Arbitration Rules; Art. 17(2) ICC Rules.
192) Fouchard/Gaillard/Goldman, para. 1513 (p. 845).
193) An overview of the application of trade usage by arbitrators in ICC arbitration is
found in Dossiers of the Institute, International Trade Usage, ICC Publ. No. 440/4.
Such trade usages may also be found in formalized rules such as the INCOTERMS
(latest version of 2000, ICC Publ. No. 560) and in certain standardized conditions of
contract applicable to particular industries. Yet one must be cautious: for example,
as regards the ICC Uniform Customs and Practice for Documentary Credits (latest
version of 2007, UCP 600) or the (alternative, U.S.-driven) ICC rules governing
standby letters of credit, known as International Standby Practices (ISP 98), it is
widely recognized that their direct application depends on a reference to them in
the relevant contract (Horn, ‘Contract Law of International Trade and Finance’, 79).
As with general contract principles, such a direct application is to be distinguished
from the UCP's or ISP 98's use as a means of interpreting and supplementing the
contract and the applicable national law. They may be seen as a statement of
generally accepted practice, custom and usage insofar as their provisions are
relevant to interpret letters of credit that do not specifically adopt them.

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 194) See Fouchard/Gaillard/Goldman, paras 1513-1514 (p. 845-46) and the case law cited
at n. 43; Derains/Schwartz, 243-44; see also the definition of trade usage of § 1-
205(2) UCC and Art. 1.8(2) UPICC.
195) Mustill, 157; see also Art. 9(2) CISG.
196) See, e.g., award in ICC Case No. 8873 of Jul. 1997 (infra n. 198) (rejecting the argument
with regard to Arts 6.2.1-6.2.3 UPICC regarding hardship); award in ICC Case No. 9029
of 1998, ICC Bull. 1999, 88; award in ICC Case No. 9419 of 1998, ICC Bull. 1999, 104. See
also Bonell, ‘The UNIDROIT Principles and Transnational Law’, 31-33.
197) Award in ICC Case No. 9029 of Mar. 1998, ICC Bull. 1999, 90, UNILEX.
198) Award in ICC Case No. 8873 of Jul. 1997, UNILEX. The award concerned a contract
between a Spanish and a French company for the construction of works in a third
country. Faced with a number of unforeseen difficulties which substantially
increased the cost of the construction, the contractor requested the renegotiation of
the contract invoking hardship according to Arts 6.2.2 and 6.2.3 UPICC. According to
the contractor, although the contract contained a choice of law clause in favour of
Spanish law, the UPICC were applicable as they represent veritable trade usages
that the Arbitral Tribunal had at any rate to take into account under Art. 13(5) of the
ICC Rules of Arbitration and Conciliation. While the award rightly rejected this
proposition, it may nevertheless be criticized on the grounds that it did not
examine whether the provisions of the UPICC could have been used to interpret the
applicable Spanish law.
199) Cf. Craig/Park/Paulsson at 633 ff.
200) Id., at 638.
201) Dessemontet, Use of the UNIDROIT Principles, 49 at para. 34.
202) Cf. Blessing, ‘Introduction to Arbitration’, para. 362: ‘The recognition of the notion
and understanding that international arbitration should clearly distance itself from
local procedures and perceptions is one of the most predominant and at the same
time justified concerns; a concern which is just as significant from the point of view
of western industrialized nations as from the point of view of upcoming and
developing industrial nations.’
203) Bonell, ‘The UNIDROIT Principles and Transnational Law’, 38.
204) But see Fouchard/Gaillard/Goldman, para. 1512 (p. 844). For the meaning of a ‘strict
law clause’, see supra p. 31 at n. 162.
205) For the unsatisfactory theory of the incompleteness of the law chosen by the parties,
see Fouchard/Gaillard/Goldman, para. 1512 (pp. 842-844).
206) §§ 280(1), 276 BGB.
207) Infra §§ 6-7.
208) Dauner-Lieb, in Anwaltskommentar BGB, § 276 BGB para. 3; infra § 7 II.A.
209) Zimmermann, ‘Breach of Contract and Remedies under the New German Law of
Obligations’, 18.
210) Hondius, ‘The Genesis of the Principles of European Contract Law and of Modern
Dutch Private Law’, 24, citing Nationale Volksbank v. Helder, HR 27 Apr. 1984, NJ 1984,
679.
211) See Maskow, Am. J. Comp. L. 40 (1992): 657, 665 ff.; Berger, Am. J. Comp. L. 46 (1998):
129, 139-140.
212) Despite their denomination as ‘contract conditions’, those ‘General Conditions’ had
a law-like quality (Berger, Am. J. Comp. L. 46 (1998): 139 n. 50).
213) Award in ICC Case No. 8486 (original in German), J.D.I. (1998): 1047-1049, English
translation in Y. B. Com. Arb. 1999, 162-173, UNILEX and reported by Berger, Am. J.
Comp. L. 46(1998): 140 ff.
214) Berger, id., at 141, citing Kuijer, Een vergelijking van ‘hardship’ uit de UNIDROIT-
regeling met de onvoorziene omstandigheden uit artikel 6:258 van het BW, Ars Aequi
1996, 16, 19.
215) See Berger/Dubberstein/Lehmann/Petzold, 108 with references at n. 74; see
generally Bonell, ‘The UNIDROIT Principles as a Means of Interpreting and
Supplementing International Uniform Law’, ICC Bull., Special Supp. (2002): 29-38.
216) Art. 7(2) CISG states: ‘Questions concerning matters governed by this Convention
which are not expressly settled in it are to be settled in conformity with the 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.’
217) See Art. 6(2) Convention on Agency in the International Sale of Goods of 17 Feb. 1983;
Art. 6(2) Convention on International Financing Leasing of 22 May 1988; Art. 4(2)
Convention on International Factoring of 28 May 1988; Art. 5(2) Convention on
International Interests in Mobile Equipment of 16 Nov. 2001. The text of all
conventions is available at the UNIDROIT website.
218) Magnus, ‘General Principles of UN-Sales Law’, s. 4.a.
219) Bonell, An International Restatement of Contract Law, 232 ff., 317, 320 ff.; Magnus,
ZEuP (1999): 648; id., ‘General Principles of UN-Sales Law’, s. 6.b.; id., in Staudinger,
Art. 7 CISG para. 14; id., ‘Force Majeure and the CISG’, 24-27; Schlechtriem,
Einheitliches UN-Kaufrecht, para. 52 n. 80; Basedow, in FS Drobnig, 23 ff.; Garro, ‘The
Gap-Filling Role of the UNIDROIT Principles in International Sales Law’, Tul. L. Rev.
69, 114 (1995); but see Ferrari, in Schlechtriem/Schwenzer, Art. 7 CISG para. 62. For an
overview of the different opinions of legal writers, see Bonell, ‘The UNIDROIT
Principles and Transnational Law’, 35.

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 220) Magnus, ‘General Principles of UN-Sales Law’, s. 6.b. (footnotes omitted).
221) See Bonell, ‘The UNIDROIT Principles and Transnational Law’, 35-36, with references
to case law.
222) See infra § [Link].2.

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Document information Chapter 2: Scope of Application of General Contract
Principles, Section 5: No Choice of Law Made by the
Publication Parties
Force Majeure and
Hardship under General I Authority to Apply General Contract Principles in the Absence of a Choice
Contract Principles: of Law: ‘Rules of Law’; ‘Voie Directe’; Review of Awards by State Courts
Exemption for Non-
performance in A ‘Rules of Law’ versus a National System of Law
International Arbitration
Where the parties have not selected a particular substantive law, it must be determined
by the arbitrators. In performing this task, arbitrators are conferred broad discretion by
Bibliographic reference modern arbitration laws. This applies not only to the method they use (see Section § 5.I.B
infra), but also to the subject matter of their choice. Under some national arbitration laws
'Chapter 2: Scope of and institutional rules, not only may the parties choose ‘rules of law’ as the applicable
Application of General law, also the arbitrators are allowed to apply ‘rules of law’ as contrasted with a specific
Contract Principles, Section national law. The same expression – ‘rules of law’ – is used to define to define the subject
5: No Choice of Law Made matter of the parties and the arbitrators' choice. This is, in particular, the solution
by the Parties', in Christoph adopted in France, Switzerland and the Netherlands. (223) As seen above, the expression
Brunner , Force Majeure ‘rules of law’ is commonly understood as rules other than those of a particular national
and Hardship under law, such as general principles of law or principles common to the legal systems
General Contract connected to the case. (224)
Principles: Exemption for
Non-performance in The UNCITRAL Model Law and, following its lead, other arbitration laws, are more
International Arbitration, conservative. Article 28(2) of the UNCITRAL Model Law provides: ‘Failing any designation
International Arbitration by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws
Law Library, Volume 18 rules which it considers applicable.’ Accordingly, the reference to ‘rules of law’ is limited
(© Kluwer Law to a selection of the applicable law by the parties. (225) In the absence of such a choice,
International; Kluwer Law the arbitral tribunal has to apply the law designated by the application of a choice of law
International 2008) pp. 43 - rule. The example of the Model Law is in particular followed in England, Germany and
56 P 44 Italy. (226) However, arbitrators may nevertheless be entitled to select the ‘rules of
law’ – and not necessarily ‘the law’ – applicable to the merits if the parties have adopted
the most recent version of the international arbitration rules of the ICC, American
Arbitration Association (AAA), World Intellectual Property Organization (WIPO) or London
Court of International Arbitration (LCIA). (227) These institutional arbitration rules give the
freedom to choose the ‘rules of law’ not only to the parties, but also to the arbitrators if
the parties have made no choice.
The arbitral tribunal's empowerment to select rules of law instead of a specific national
law as the proper law of the contract ensures that it is conferred as much flexibility as
required by the specific circumstances of the case. (228) The general trend to authorize
courts and arbitral tribunals to apply general principles of law in the absence of a choice
of law by the parties is also reflected in the Preamble of the UPICC (2004), providing that
‘[t]hey may be applied when the parties have not chosen any law to govern their
contract’. (229)

B ‘Voie directe’: Direct Choice Method

Most recent national arbitration statutes as well as many recent arbitration rules
empower arbitral tribunals to use the ‘voie directe’ in choice of law. (230) Under this
method, the arbitral tribunal is basically free to apply the law (including rules of law)
which it deems appropriate directly, without any necessity to investigate any ‘rule of
conflict’, whether of a national law or otherwise, in making that determination. (231)
Pursuant to the so-called ‘subjective voie directe’, the applicable law may be determined
on the basis of any criteria which the tribunal considers to be appropriate. (232) The so-
called ‘objective voie directe’ provides for a very broad ‘objective’ criterion; accordingly,
the law that has the closest connection with the dispute has to be selected. (233)
P 45
However, regardless of whether the applicable law is to be determined by means of the
closest connection test (‘objective voie directe’) or just by choosing the most ‘appropriate’
law (‘subjective voie directe’), it seems to be clear that some ‘objective’ elements must
always be applied in order to provide adequate reasons for the selection of a particular
law or rules of law. (234)
Under the direct choice method, arbitrators may have recourse to the choice of law
system in force at the place of arbitration, (235) to a cumulative application of the
different rules of conflict of the countries having a relation to the dispute and yielding
the same results, or to the application of general principles of conflict of laws. (236) Yet in
some instances, especially if only a single and narrowly defined legal issue is at stake,
arbitrators may find it appropriate to directly apply the substantive provisions of the law
systems of the countries having a relation with the dispute. Such an approach may produce
two different results: first, by examining the provisions of the various potentially
applicable substantive laws, it may be determined that in fact there is no conflict and
thus no need to make a choice. (237) Second, an application of the different substantive
laws may not lead to the same result. In such a case, it may be appropriate to give

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 preference to the substantive law that is (more) in line with general principles of law.
Hence the appropriateness of a particular approach may depend on an evaluation of the
legal issues or rules likely to be relevant to the dispute.

C Awards Made in Application of General Principles of Law in the Absence of a Choice

of Law by the Parties Have Survived Judicial Challenge
A number of awards rendered by ICC arbitral tribunals which have found it possible and
P 46 appropriate to base their decisions on general principles or usages, without any
reference to a single national governing law, have subsequently been upheld by state
courts. (238) The position of state courts competent to review awards in setting aside or
enforcement proceedings is significant, as arbitral tribunals are concerned that the
award is enforceable at law. (239)
In Pablak Ticaret (Turkish commercial agent) v. Norsolor (French company), no applicable
national law had been agreed by the parties, nor had the parties given the arbitrators the
power to act as ‘amiables compositeurs’. (240) The arbitral tribunal had applied neither
French nor Turkish nor Austrian (Vienna was the place of arbitration) law, but had simply
based its decision on its understanding of the agreement, on lex mercatoria, and on the
principles of good faith dealings and mutual trust in business relations. Norsolor sought
to set aside the award, especially on the ground that the arbitrators had not determined
the applicable law by a conflict-of-law analysis as required by the then applicable 1975
ICC Rules. (241) In 1982, the Austrian Supreme Court upheld the award, and exequatur was
granted in France. (242)
In Banque du Moyen-Orient (Lebanon) v. Fougerolle (France), the French Supreme Court
similarly upheld an ICC award rendered in Geneva. Having applied principles ‘generally
applicable in international commerce’, the tribunal was accused by the losing party of
having usurped the role of amiables compositeurs. (243) The Cour de Cassation rejected an
attack on the award in 1981. (244)
Moreover, the French courts upheld the 1988 ICC award made in Primary Coal Inc. v.
Compania Valenciana de Cementos Portland, in which the arbitrator applied the lex
P 47 mercatoria in the absence of a choice of law by the parties. (245) While the award has
been criticized for different reasons, (246) these do not affect the following conclusion
reached by the French courts: general principles of law and international trade usages
constitute rules of law in the sense of Article 1496 NCPC, and arbitrators are allowed to
choose the lex mercatoria as the applicable substantive law even if it has not been
chosen by the parties. (247)
By the same token, in Deutsche Schachtbau- und Tiefbohrgesellschaft v. Ras al Khaimal
National Oil Co., the English Court of Appeal recognized in 1987 an ICC award rendered in
Geneva where the arbitral tribunal applied internationally accepted principles of law.
(248)
The approach taken by these courts corresponds to the resolution adopted by the
International Law Association in 1992: (249)
The fact that an international arbitrator has based an award on transnational
rules (general principles of law, principles common to several jurisdictions,
international law, usages of trade, etc.) rather than on one law of a particular
State should not itself affect the validity or enforceability of the award:
(1) where the parties have agreed that the arbitrator may apply
transnational rules; or
(2) where the parties have remained silent concerning the applicable law.
P 48

II Different Options as to How General Contract Principles May Be Applied

or Taken Into Account in the Absence of a Choice of Law by the Parties
A General Contract Principles as a Means of Interpreting and Supplementing the
Applicable National Law
In the absence of a choice of law, arbitral tribunals should be empowered to use general
contract principles to interpret and supplement a particular domestic law irrespective of
the applicable arbitration law and rules. This is so because of the autonomous basis of
this use of general contract principles. (250) The national law may be interpreted in the
light of generally recognized standards so as to avoid – within the limits of statutory
interpretation – unexpected peculiarities of the relevant national law. Where the parties
have not chosen the applicable law, the relevance of this function of general principles
may be even greater than in a situation where the parties have made a choice of law:
(1) If an arbitral tribunal selects a particular national law as the governing law in the
absence of a choice of law, such a selection will often call for a less strict application
of the relevant national law. This is due to the simple fact that the parties did not
intend to have their contract governed by that particular law; contrary to the

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 situation of a choice of law, the principle of party autonomy does not come into
play. A less strict application of the selected national law may also be justified
inasmuch as other connecting factors point to other national laws.
(2) Where the parties have failed to choose the applicable law, it may be considered
whether they have concluded an implied negative choice of law. In particular, each
party may have proposed its own law, rejected the proposal of the other party, and
finally, neither law was stipulated. Such a negative choice can only have the effect
of excluding the relevant national laws if the negative choice of law is sufficiently
established. In particular, such a choice cannot be derived from the hypothetical or
presumed intent of the parties. (251) However, a presumed intent of the parties
regarding a negative choice of law can be taken into account in connection with– if
necessary and possible – an extensive interpretation of the relevant national law.
(3) The proposition that the applicable national law may be interpreted extensively in
the light of general contract principles is particularly relevant in situations where
the arbitrators consider a direct or concomitant application of general contract
principles, but nevertheless select a particular national law. Such situations may
involve cases where the ‘centre of gravity’ of the contract or dispute in question
P 49 cannot clearly be attributed to an individual national law because of several
different competing connecting factors or conflict rules. (252)

B Concurrent Application of General Contract Principles in Conjunction with a

National Law
The concept of concurrent laws as embodied in the 1965 Washington (ICSID) Convention
(253) means that in the absence of an express choice of law by the parties, the arbitral
tribunal will apply the law of the contracting state and ‘such rules of international law as
may be applicable’. (254) The Washington Convention provides for the resolution of
disputes between a state (or a state entity) and a private party, provided that the state
has adopted the Convention. The Convention's system of concurrent laws subjects the
national law to ‘international quality control’. (255) It in particular meets the concern of
private parties engaged in business relationships with a sovereign state, that the state
may change its own law to the disadvantage of the private party after the contract has
been signed. As explained by Redfern and Hunter: (256)
The state's own law is given proper recognition. Yet some fetter is imposed
upon possibly unfair or arbitrary action, by the reference to public
international law. (…) For example, a state that terminated a long-term
investment contract by an act of nationalisation would presumably do so in a
way that was valid under its own law. However, such an act of nationalisation
would not be valid under international law unless it was shown to be non-
discriminatory and to serve a public purpose, with proper compensation
being offered. In this way, international law would be brought into play to set
a minimum standard, which the arbitral tribunal would be empowered to
uphold in its award.
If the concept of the Washington Convention is generalized, it stands for the proposition
that general principles of law (including principles of public international law) may be
applied so as to avoid an application of singular ‘local standards’ of the applicable
domestic law. Thus, under the concept of concurrent laws, a rule of the otherwise
applicable national law which is demonstrably at odds with international standards and
P 50
therefore contrary to the reasonable expectations of the parties, may be substituted
by general principles of law. (257) The system of concurrent laws requires that arbitral
tribunals are prepared to strike a balance between state law and general principles of
law and to give due weight to both. (258)

C Application of General Contract Principles Supplemented with the Law of a

Particular State: Comparison with the tronc commun Doctrine
Inasmuch as arbitrators are authorized to select general contract principles as the
governing law at the exclusion of a national law, they should equally be authorized to
determine that a particular soft law codification, especially the UPICC, shall be
applicable, supplemented with the law of a particular state with regard to questions not
expressly settled therein. According to Article 1.6 UPICC, ‘[i]ssues within the scope of
these Principles but not expressly settled by them are as far as possible to be settled in
accordance with their underlying general principles’. However, as made clear by the
Comment on Article 1.6 UPICC, parties are always free to agree on a particular national
law to which reference should be made for the supplementing of the Principles. (259)
When the parties have not chosen any law to govern their contract, arbitrators may
therefore take the same approach where this appears to be appropriate.
Besides, instead of general contract principles as evidenced by the UPICC, it could also
be envisaged to apply the combined laws of the parties, i.e., the rules which are common
to the legal systems of both parties to the dispute (tronc commun doctrine; combined
laws). (260) However, the practical consequences of an application of the tronc commun
doctrine will often not be satisfactory. If the relevant legal systems are (too) diverse, no
common principle can be found. Furthermore, it may be extremely burdensome for the

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 parties' counsel and the arbitral tribunal to search and establish the common principles
applicable to the issues in dispute. This is illustrated by the famous Sapphire arbitration
and the Channel Tunnel case. (261) Interestingly, in an arbitration between the Eurotunnel
company and the construction consortium, there was a general agreement that on the
P 51 basis of the choice of law clause contained in the construction contract, which
provided for the primary application of ‘the principles common to both English law and
French law’, the UPICC, or more specifically its provision on hardship, should be applied.
(262)

D Selection of General Contract Principles As the Governing Law: ‘Centre of Gravity

Test’ and Negative Choice of Law
Arbitrators who are considering to select general contract principles as the proper law of
the contract must first of all be satisfied that they have the authority to do so. It has been
seen above that some modern arbitration statutes and the most recent versions of
institutional international arbitration rules empower not only the parties, but also
arbitrators, to select ‘rules of law’. Moreover, under the direct choice method, arbitrators
are authorized to select general principles of law as the applicable law in appropriate
cases. (263)
Despite the considerable freedom conferred by the direct choice method, arbitrators will
have to evaluate the appropriateness of such a choice in view of the particular
circumstances of the case. Apart from the input of the parties on the point of the
applicable law, (264) arbitrators should ascertain that there is sufficient evidence that
such a choice is covered – at least indirectly – by the parties' intentions. Craig, Park and
Paulsson have stated: (265)
[I]f the sole criterion is the appearance of neutrality, it is the present authors'
view, as matters stand today in most countries, that ICC arbitrators run the risk
of doing mischief if they declare lex mercatoria to be the governing law. The
proper conduct would seem to be that of the tribunal in ICC Case 4650, which
declined to accept lex mercatoria as the applicable law in the absence of any
proof that the parties had so intended; ‘the choice of such a law would require
an agreement between the parties …’.
The same authors have also noted that awards based on an application of general
principles of law may ‘in many cases (…) more nearly establish the real intent of the
P 52 parties than would the application of a conflictualist approach which seeks to impose
a single choice of national law’. (266) The parties' intentions, which may also be declared
indirectly or implicitly, provided they are sufficiently established by evidence, will often
be the most practical test in determining whether general contract principles should be
applicable in the absence of a choice of law by the parties. Such an intention of the
parties may be found on the basis of a centre of gravity test (objective approach) or a
negative choice of law by the parties (subjective approach).
An objective approach, which may point to an application of general contract principles,
consists of an analysis of the ‘centre of gravity’ of the contract or dispute in question. In
some instances, the centre of gravity may not clearly be attributed to an individual
national law. This is because all of the different connecting factors or conflict rules are
equivalent or equally divided, and thus none of them prevail. (267) It may then seem
inappropriate for arbitral tribunals to nevertheless give one of those national laws
primacy over the others. One situation where the dominance of any national law seems
doubtful is that of a contract to be performed in several countries. (268)
Another example of the objective approach is the award in ICC Case No. 8502. (269) This
case involved a contract between a Vietnamese seller and a Dutch buyer acting through a
French company as its agent. The contract did not contain a choice of law clause, and the
dispute had ‘connections with several national laws, all of which may have a relevant
role’. The tribunal noted in particular: (270)
Although the Contract contains no choice of law clause, it refers to
international trade usages. Article 6 of the Contract, with respect to the price
to be paid by the buyer, provides that Incoterms 1990 shall apply. Similarly,
Article 13 of the Contract stipulates, as regards force majeure, that the clause
of UCP 500 shall apply. It thus appears that the Parties have, to a large extent,
agreed to submit their relationship to recognized trade usages such as the
Incoterms or the Uniform Customs and Practice for Documentary Credits (UCP),
published by the ICC. The Arbitral Tribunal considers that by referring to both
the Incoterms and the UCP 500 the Parties showed their willingness to have
their Contract governed by international trade usages and customs. (…)
For the foregoing reasons, the Arbitral Tribunal finds that it shall decide the
present case by applying to the Contract entered into between the Parties
trade usages and generally accepted principles of international trade. In
particular, the Arbitral Tribunal shall refer, when required by the
circumstances, to the provisions of the 1980 Vienna Convention on Contracts
P 53 for the International Sale of Goods (Vienna Sales Convention) or to the
Principles of International Commercial Contracts enacted by Unidroit, as

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 evidencing admitted practices under international trade law.
The individual provisions then applied by the tribunal were Articles 76 CISG and 7.4.6
UPICC (proof of harm by current price). Even though the concept of trade usages does not
include general contract principles, (271) their application in the above case nevertheless
seems to be justified because of the lack of any dominant connecting factor and the
rather technical nature of the applied provisions of the CISG and UPICC.
Where parties have failed to choose the applicable law, arbitral tribunals have in some
instances found an implied negative choice of law, i.e., a decision by the parties as to what
was not to be the applicable law. In a second step, if it is found that a negative choice of
law is sufficiently established, the applicable law (including rules of law) needs to be
determined. Arbitrators will thereby follow the method (voie directe or application of a
choice of law rule) which applies in the absence of a positive choice of law. They may
then conclude that a national law not affected by the negative choice of the parties or
general principles of law shall be the governing law of the contract.
Since the parties may choose a law, they may also exclude a law by a negative choice of
law. But as in the case of a positive choice, this must also be done expressly or a least
unequivocally. (272) It is generally acknowledged that a tacit choice of law can only be
found where it is reasonably clear that it is a genuine choice by the parties. (273) In
particular, it is considered that a choice of law cannot be derived from the hypothetical
or presumed intent of the parties. (274) In other words, a choice of law cannot be derived
from the intent that the parties would presumably have had – but in the event did not
have – if they had thought about the question of applicable law. (275) In order to
facilitate a decision as to whether an implicit but ‘genuine’ or ‘real’ common intent of the
parties regarding a choice of law is to be affirmed, certain criteria have been established
by case law and legal writers. (276)
This notwithstanding, inasmuch as the applicable law is to be determined according to
P 54 the subjective direct method (voie directe) where an arbitral tribunal if free to decide
which rules of law it considers ‘the most appropriate’, indications as to the presumed
intent of the parties may nevertheless be taken into account. (277) Whether this is
justified under the particular circumstances will depend on the specific facts, especially
on whether there is sufficient (circumstantial) evidence regarding criteria also used for
the determination of a ‘genuine’ implicit (negative) choice of law.
Thus it is essential to determine the relevant criteria which may point to the existence of a
negative choice of certain national laws. From the mere fact that the parties were unable
in their negotiations to agree on a (positive) choice of the law of one of the parties or on a
particular third law, it cannot be inferred that the parties made a negative choice of all
these laws. (278) Instead, the conclusion of an implicit negative choice can only be made
if additional elements are present, e.g., if, as in ICC Case No. 7375, a state is involved and
the exclusion of the parties' national laws is established by the evidence.
The preliminary award of 5 June 1996 made in ICC Case No. 7375 is an example where the
arbitral tribunal has considered it appropriate to apply general principles of law in the
presence of an implicit negative choice of law. (279) The case involved nine contracts
made in the 1970s between Iran and a US supplier. None of the contracts contained a
choice of law clause. On the basis of the scarce evidence before it, the tribunal
concluded that at the time of entering into the agreements, neither party would have
agreed to the use of the other party's national laws. It also found it quite probable that
Iran's government would not have entered into the contracts if that had meant subjecting
P 55 itself to the relevant US law (law of the state of Maryland). The tribunal found that by a
kind of ‘shouting silence’ there was an implied negative choice of law, and that the
contracts should therefore not be subject to the laws of either party. In deciding which
law should be the applicable law, the tribunal opted for the application of general
principles of law. The tribunal stated: (280)
The Tribunal will apply those general principles and rules of law applicable to
international contractual obligations which qualify as rules of law and which
have earned a wide acceptance and international consensus in the
international business community, including notions which are said to form
part of a lex mercatoria, also taking into account any relevant trade usages as
well as the UNIDROIT Principles, as far as they can be considered to reflect
generally accepted principles and rules.
The legal issues which had to be solved on that basis included questions of limitation
and contractual performance. It has been observed that this case provides ‘a useful
illustration of the advantages and practical application of transnational law’, and that ‘it
provides a way of meeting the needs of the parties whilst respecting state sovereignty
and applying laws which could be uncontroversial and acceptable to all concerned’. (281)
P 55

References

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 223) See Art. 1496(1) NCCP; Art. 187(1) PILS; Art. 1054(2) of the Netherlands Code of Civil
Procedure; Fouchard/Gaillard/Goldman, para. 1554 (p. 878); Poudret/Besson, paras
700-02, and references there.
224) See, e.g., Fouchard/Gaillard/Goldman, para. 1556; supra p. 25.
225) See supra p. 24-25.
226) Section 46(3) of the English Arbitration Act 1996; § 1051(2) of the Tenth Book of the
German Code of Civil Procedure; Art. 834(1) of the Italian Code of Civil Procedure;
Fourchard, para. 1554 (p. 878); Poudret/Besson, p. 615 (comparative table) and para.
703.
227) Art. 17(1) ICC Rules; Art. 28.1 AAA Rules, Art. 22.3 LCIA Rules, Art. 59(a) WIPO Rules. But
see Art. 33(1) of the 1976 UNCITRAL Arbitration Rules.
228) Craig/Park/Paulsson, 320: ‘The freedom of the arbitral tribunal, like that of the
parties, to apply rules of law other than those of a single state provides a flexibility
to meet the intentions of the parties and to respond to all the circumstances of a
case.’
229) Paragraph 4 of the Preamble, which was newly introduced in the 2004 version of the
UPICC. See also Art. 1:101(3)(b) PECL.
230) See generally Fouchard/Gaillard/Goldman, para. 1546. By contrast, Art. 28(2) of the
UNCITRAL Model Law provides that ‘the arbitral tribunal shall apply the law
determined by the conflict of laws rules which it considers applicable’; the
application of a choice of law rule is also provided for in s. 46(3) of the English
Arbitration Act 1996.
231) Craig/Park/Paulsson, 320.
232) For arbitration statutes providing for the ‘subjective’ voie directe (i.e., referring to
the rules of law which the tribunal considers appropriate), see Art. 1496(1) NCCP, Art.
1054 of the Netherlands Code of Civil Procedure). The subjective direct choice
method is also found in various international arbitration rules: Art. 17(1) ICC Rules;
Art. 28.1 AAA Rules; Art. 22.3 LCIA Rules; Art. 59a WIPO Rules.
233) This position is taken by the Swiss arbitration law in Art. 187(1) PILS (Karrer, Art. 187
PILS paras 105 ff.) and has been followed in several recent arbitration statutes,
including those of Italy, Mexico and Germany (Fouchard/Gaillard/Goldman, para.
1544, p. 869, and references there).
234) While the reference to the ‘appropriate’ law or rules of law contained in Art. 17(1) ICC
Rules might be understood to indicate a proper law or rules of law other than those
with which the case has its closest connection, no real or practical distinction exists
between these two approaches (Craig/Park/Paulsson, 325 at n. 13; see also
Derains/Schwartz, 242). If, in order to expedite matters, the decision on the
applicable substantive law is first delivered in a procedural order (and not in an
interim award with reasons), the reasons for the relevant decision must be given
subsequently in the award (Derains/Schwartz, id.; see also Craig/Park/Paulsson,
329).
235) With regard to Art. 187(1) PILS, it has been said that in practice arbitral tribunals
often follow, without clearly saying so, the conflict of laws method of Arts 116-117
PILS which is applicable before state courts (Heini, Art. 187 PILS para. 17; similarly, A.
Bucher, paras 245, 247). The Swiss conflict rules are then applied not because they
are the conflict rules of the place of arbitration, but because the arbitral tribunal in
its discretion finds that they are appropriate for the case at hand in accordance
with Art. 187(1) PILS (Bucher/Tschanz, 101).
236) See, e.g., Craig/Park/Paulsson, 323 ff.
237) Craig/Park/Paulsson, 327, with reference to the 1969 award made in ICC Case No.
1525, where the arbitrators decided that it was unnecessary to determine whether
the issue of prescription was governed by the statute of limitation of Turkey (one
year) or Czechoslovakia (three years), since in any event a claim had been filed
within the shorter period.
238) See the references in Craig/Park/Paulsson, 333-334. See also Schroeder/Opermann,
‘Anerkennung und Vollstreckung von Schiedssprüchen nach lex mercatoria in
Deutschland’, England und Frankreich, ZvglRWiss. (2000) 410 ff.
239) Cf. Craig/Park/Paulsson, 365; 340-41.
240) Award in ICC Case No. 3131 of 1979, Y. B. Com. Arb. 1984, 109.
241) Art. 13(3) read as follows: ‘In the absence of any indication by the parties as to the
applicable law, the arbitrator shall apply the law designated as the proper law by
the rule of conflict which he deems appropriate.’
242) OGH 18.11.1982, RIW (1983): 868; excerpts in Y. B. Com. Arb. 1984, 159; for the
judgments relating to the award's enforcement in France (decision by the Cour de
Cassation), see Rev. arb. (1983): 465 ff.; for a discussion of the case, see also
Craig/Park/Paulsson, 335.
243) Craig/Park/Paulsson, 336.
244) Decision of 9 Dec. 1981, Rev. arb. (1982): 183, J.D.I (1982): 931.

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 245) ICC Case No. 5953, Rev. arb. (1990): 701-11. The case concerned the validity of a sales
agreement that did not specify the price of the goods sold. The arbitrator, for the
sole purpose of escaping the nullification which would have resulted from the
application of French law, held that the lex mercatoria applied. He went on by
saying that no rule of the lex mercatoria provides for the nullity of a sales
agreement, on the ground that no price had been fixed and that, as a consequence,
the sales contract was valid (Mayer, Arb. Int. 17 (2001): 235, 240).
246) On the one hand, according to Art. 13 of the former ICC Rules (now replaced by Art.
17(1) of the ICC Rules of 1998), the arbitrators were only allowed to apply a ‘law’, as
opposed to ‘rules of law’ (Poudret/Besson, paras 699, 701). On the other hand, it is
questionable whether there was indeed a sufficient ‘negative choice of law’ by the
parties so as to warrant the application of the lex mercatoria (see infra p. 54 at n.
278).
247) See the decisions of the Cour de Paris, Rev. arb. (1990): 663, Y.B. Com. Arb. 1991, 142-
44, and of the Cour de cassation, Rev. arb. (1992): 457, Y.B. Com. Arb. 1993, 137-39.
248) Deutsche Schachtbau- und Tiefbohrgesellschaft GmbH v. Ras al Khaimal National Oil
Co. and Shell International Petroleum Co. Ltd., Lloyd's L Rep 2, 246 (1987), All E R 2,769
(1987), extracts in Y. B. Com. Arb. 1988, 522 (1988); reversed on other grounds by the
House of Lords, All E R 2, 833 (1988); see Mustill, 171-72; Craig/Park/Paulsson, 337, n.
57; Frick, 140; Rivkin, Arb. Int. 9 (1993): 75, 78 ff. (In that case, the English Court of
Appeal rejected the objection that the award would be contrary to public policy as
the principles applied by the arbitrators were so uncertain. It stated in particular
(Lloyd's L Rep 2, 254 (1987)): ‘by choosing to arbitrate under the rules of the ICC and,
in particular, Article 13.3, the parties have left the proper law to be decided by the
arbitrators and have not in terms confined the choice to national systems of law. I
can see no basis for concluding that the arbitrators' choice of proper law – a
common denominator of principles underlying the laws of the various nations
governing contractual relations – is outwith the scope of the choice which the
parties left to the arbitrators.’
249) Quoted in Transnational Rules in International Commercial Arbitration, ICC Publ
480/4(1993):247; see also Redfern/Hunter, para. 2-64.
250) See supra pp. 33 ff.
251) See infra p. 53 at n. 273.
252) An example is where a contract is to be performed in several countries, see infra p.
52.
253) Convention on the Settlement of Investment Disputes between States and Nationals
of Other States of 1965; for an overview see, e.g., Redfern/Hunter, paras 1-123 ff.).
254) Art. 42(1) of the Washington Convention provides as follows: ‘The Tribunal shall
decide a dispute in accordance with such rules of law as may be agreed by the
parties. In the absence of such agreement, the Tribunal shall apply the law of the
Contracting State party to the dispute (including its rules on the conflict of laws)
and such rules of international law as may be applicable.’
255) Rawding, Arb. Int. 11 (1995): 341, 352.
256) At para. 2-48-2-49.
257) It has been pointed out, however, that the hierarchy between the relevant national
law and general principles of law rarely creates problems in practice (Mustill, 168).
258) Redfern/Hunter, para. 2-52.
259) Comment No. 4 on Art. 1.6 UPICC.
260) The tronc commun doctrine is based on the proposition that, if free to do so, each
party to an international commercial transaction would choose its own national law
to govern that transaction. As this regularly proves unacceptable, the tronc commun
doctrine attempts to reach a compromise between either party's (presumed) desire
to have its own law applied to the contract by identifying the common parts of the
two different systems of law and applying these common parts to the matters in
dispute. The doctrine was elaborated by Rubino-Sammartano (Rev. arb. (1987): 133
ff.; see Redfern/Hunter, 107).
261) See Redfern/Hunter, paras 2-53 to 2-56.
262) Berger, The Creeping Codification of the Lex Mercatoria, 36, citing Schlechtriem,
Unidroit Principles und Werkvertragsrecht, in Festschrift von Craushaar (1997), 157.
The relevant choice of law clause provided that the contract would ‘… in all respects
be governed by and interpreted in accordance with the principles common to both
English law and French law, and in the absence of such common principles by such
general principles of international trade law as have been applied by national and
international tribunals.’ See Redfern/Hunter, para. 2-54.
263) Supra pp. 43 ff.
264) The parties' agreement on the applicability of a limited number of national legal
systems can be considered as an implied restriction on the arbitrators' power to
determine the applicable law, preventing them to apply the lex mercatoria or
general principles of law (see Berger, International Economic Arbitration, 563).
265) At p. 337. For the award made in ICC Case No. 4650 see Y.B. Com. Arb. 1987, 112 (a
three-member tribunal sitting in Geneva and chaired by R. Briner).
266) Craig/Park/Paulsson, 333.
267) See Vischer/Huber/Oser, 81, 157-58; Frick, RIW (2001): 416, 420.

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 268) See Craig/Park/Paulsson, 635, with reference to the 1973 award in ICC Case No. 1859,
Rev. arb. (1973): 133; Bonnell, The UNIDROIT Principles and Transnational Law, 31;
Derains, ‘Transnational Law and ICC Arbitration’, 46, and the ICC awards summarized
therein.
269) Award in ICC Case No. 8502 of Nov. 1996, ICC Bull. 1999, 72-74, UNILEX; see also Bonell,
‘The UNIDROIT Principles and Transnational Law’, 31.
270) UNILEX, id.
271) See supra p. 36.
272) Karrer, Art. 187 PILS para. 89.
273) Redfern/Hunter, para. 2-76; see also Fouchard/Gaillard/Goldman, para. 1427, p. 788
(‘However, the parties' intentions must be certain’); Karrer, Art. 187 PILS para. 88
(‘they [the rules of law chosen by the parties] must result unequivocally from the
circumstances’); La Spada, in Kaufmann-Kohler/Stucki (eds), 120. See also Art. 3(1) of
the Rome Convention: ‘The choice must be expressed or demonstrated with
reasonable certainty by the terms of the contract or the circumstances of the case.’
274) For Switzerland, see Karrer, id.; Lalive/Poudret/Reymond, Art. 187 PILS paras 4-5;
Heini, Art. 187 PILS para. 11; Amstutz/Vogt/Wang, Art. 116 PILS para. 39; all regarding
Art. 116(2) PILS, which is applicable to state courts and provides that ‘[t]he choice of
law must be express or clearly evident from the terms of the contract or the
circumstances’.
275) See Bucher/Tschanz, 100.
276) See generally Vischer/Huber/Oser, 90 ff.; Amstutz/Vogt/Wang, Art. 116 PILS paras 39
ff.
277) Derains (in ‘Transnational Law in ICC Arbitration’ at 47) notes that the ‘subjective
approach is probably the approach which provides the greatest number of recent
examples’. The issue is more delicate under the ‘objective’ voie directe, providing
that the proper law of the contract shall be determined according to the closest
connection with the dispute (see supra p. 44). It has been said that Art. 187(1) PILS
‘declines to use the hypothetical will of the parties as a connecting factor’ (Karrer,
Art. 187 PILS para. 110). This seems to be the correct view, even though the closest
connection test is basically an ‘empty phrase, seeking to achieve a type of ‘Private
International Law justice in every individual case’ (Karrer, id., at para. 111). Under
this method, failing a proper tacit negative choice, transnational rules may
nevertheless be selected under the objective approach mentioned above, i.e., when
the dispute has no prevailing connecting factor with regard a particular national law
(see supra p. 52).
278) Karrer, id.; see also Mustill, 164; but see award in ICC Case No. 5953 of 1988, Primary-
Coal v. Compania Valenciana, Rev. arb. (1990): 701, 710-11. By the same token, a
negative choice or an implied choice of transnational legal principles can be even
less inferred from the mere omission of an express choice of law clause, the
reference to an international arbitration in general or to an arbitral institution (but
cf. the references in Berger, International Economic Arbitration, 560-61, and the
awards referred to by Bonell, ‘The UNIDROIT Principles and Transnational Law’, 31,
i.e., the awards made in ICC Cases No. 8261 of Sep. 1996 and No. 8502 of Nov. 1996).
279) The award has been reported in Int'l. Arb Rep A-1 ff. (Dec. 1996) and is available in
excerpts at UNILEX; see also Redfern/Hunter, para. 2-71 (3rd ed. 1999); Blessing, J.
Int. Arb. 14 (1997): 39, 45 ff.; Bonell, ‘The UNIDROIT Principles and Transnational Law’,
30; Crawford/Sinclair, ICC Bull. Special Supp. (2002): 59.
280) UNILEX, id.
281) Redfern/Hunter, para. 2-71, p. 127 (3rd edn 1999).

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Document information Chapter 3: The Concept of Non-performance, Section 6:
The Concept of Non-performance Under General
Publication Contract Principles
Force Majeure and
Hardship under General I Main Features of the Concept of Non-performance
Contract Principles:
Exemption for Non- A Overview
performance in
International Arbitration The concept of non-performance adopted by the UNIDROIT Principles of International
Commercial Contracts (UPICC) and Principles of European Contract Law (PECL) is based on
the United Nations Convention on Contracts for the International Sale of Goods (CISG),
and the one is essentially identical to the other. It may be characterized by five salient
Bibliographic reference features:
'Chapter 3: The Concept of (1) The unitary concept of ‘non-performance’. The word ‘non-performance’ is used as a
Non-performance, Section general term covering any failure to perform, for whatever cause. (282)
6: The Concept of Non-
performance Under (2) Significance of a breach being fundamental. While no distinction is made between
General Contract breaches of main and breaches of auxiliary obligations, a basic distinction is made
Principles', in Christoph between fundamental and other breaches of contract. (283) The concept of
Brunner , Force Majeure ‘fundamental breach’ is a milestone in the remedial provisions of the CISG, UPICC
and Hardship under and PECL. Its most important function is that it constitutes the usual precondition
General Contract for a contract to be terminated. (284)
Principles: Exemption for P 58
Non-performance in (3) No fault requirement. The remedies available in case of non-performance do not
International Arbitration, presuppose a fault by the obligor (non-performing party). Liability for non-
International Arbitration performance is thus based on the concept of strict contractual liability. (285)
Law Library, Volume 18 (4) Exemptions. Non-performance may be excused due to unforeseeable impediments
(© Kluwer Law beyond the control of the obligor (so-called ‘force majeure’ excuse: Article 79 CISG;
International; Kluwer Law Article 7.1.7 UPICC; Article 8:108 PECL). In addition, ‘hardship’ may exempt the
International 2008) pp. 57 - obligor to the extent that a court or arbitral tribunal adapts or terminates the
74 contract because of a fundamental alteration of the equilibrium of the contract
(Articles 6.2.1-6.2.3 UPICC; Articles 6:111 PECL). (286) However, given the state of
comparative law and the fact that the CISG does not provide for a hardship
exemption, it is questionable whether this defence may be characterized as a
general principle and relied on despite the absence of a contractual hardship
clause. As will be seen, a comparative law analysis suggests that the hardship
exemption may be recognized as a general principle of law (general contract
principle), but must be construed very narrowly. (287)
(5) Available remedies. As a consequence of the unitary concept of non-performance,
the rights of the aggrieved party that has not received the promised performance
are defined in general terms for any kind or type of non-performance. If non-
performance is excused by force majeure, the ‘non-performance’ remains, though
the available remedies are restricted: whereas the aggrieved party is not given the
right to claim specific performance or to claim damages, it may nevertheless be
entitled to terminate the contract, to withhold performance, to reduce the price or
to claim interest on money due. (288)

B Definition of Non-performance: Breach of Contract

Following the approach of the CISG, (289) the UPICC and the PECL have adopted a unitary
concept of ‘non-performance’. The unitary concept is characterized by three elements:
the term non-performance
(i) encompasses a breach of all obligations arising under the contract,
(ii) includes both excused and non-excused non-performance, and
(iii) is coupled with the concept of strict liability.
P 59
Especially as a result of its last feature, this unitary concept of non-performance is
supplemented by an equally unitary concept of exemption arising from impediments to
performance which are beyond the sphere of control and risk of the obligor.
The UPICC/PECL intentionally use the term ‘non-performance’ of a contract instead of the
term ‘breach of contract’ (used by the CISG) so as to avoid any confusion with the
terminology of common law. (290) In common law, a breach of contract includes a non-
performance which is not excused, e.g., under the rules as to frustration. (291) By contrast,
it has been seen that under general contract principles the notion of ‘non-performance’
encompasses any failure in performance, whether or not excused. This notwithstanding,
for practical purposes, the terms ‘non-performance’ and ‘breach of contract’ are often
used as synonyms.
Non-performance is defined as a failure by a party to perform any of its obligations under
the contract. (292) The notion of non-performance encompasses complete failure to
perform and all forms of incomplete or otherwise defective performance, late

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 performance, as well as a violation of ‘accessory’ duties, such as the duty to cooperate in
order to give full effect to the contract. (293) It is irrelevant whether the obligation is one
of the ‘principal obligations’ under the contract, (294) or some other ‘accessory’ or
‘ancillary’ obligation. (295) The occurrence of non-performance depends on the content of
the contractual obligation, in particular that the performance obligation has become due
under the rules regarding time of performance, or that any condition precedent has been
fulfilled. (296)
In case of a non-conforming tender of performance, the consequences of non-
performance may be excluded or limited if the non-performing party still has time to
make a fresh and conforming tender. A cure by the non-performing party generally
P 60 presupposes either that the time for performance has not yet arrived or that – after the
date of performance – cure is appropriate in the circumstances, (297) In particular, cure is
excluded if the other party exercises its right to terminate the contract on the grounds
that the delay resulting from a cure constitutes a fundamental non-performance. (298)
The common law is also based on a general concept of breach of contract. By contrast,
the civil law systems did – and many still do – not have unitary concept. While the
Romanic legal systems at least to some extent also adopt a unitary conception of ‘non-
performance’, (299) the pre-2002 version of the German BGB and legal systems inspired
by it (such as Austrian and Swiss law) have no unitary concept of breach of contract. Yet
their attempt to categorize the various types of breach by drawing sharp distinctions
between ‘impossibility’, ‘delay’, and ‘positive breach of contract’ has proven to be
inadequate in many respects, because it gives rise to difficult problems of delimitation
and has not been greatly esteemed elsewhere. (300) The subtle distinctions are
considered to be overly complicated and also inappropriate to the subject matter. (301)
Not surprisingly, with the CISG and its drafts, the general concept of ‘breach’ took hold in
the legal doctrines of several states and their reform codes. (302) Examples include the
Scandinavian Sales Laws, which are heavily influenced by the model of the CISG, the new
Dutch Civil Code (NBW) as well as the revised German BGB (2002). In these codes the
distinctions between different kinds of non-performance are minimized or abolished
altogether. (303) In particular, the revised German BGB has adopted a general concept of
breach of duty. If a party deviates from the content of an obligation, this constitutes a
‘breach of duty’ (‘Pflichtverletzung’). (304) This is equivalent to the general concept of
non-performance under the CISG, UPICC and PECL. (305)
The unitary concept of non-performance under general contract principles is linked to
P 61 the concept of strict liability. As illustrated by the Romanic legal systems, such a link is
not self-evident. Whereas these systems adopt a uniform concept of non-performance,
remedies for non-performance are only granted if the non-performance is ‘imputable’ to
the obligor. This frequently requires that there has been fault. (306) Breach of contract as
a unitary concept based on the concept of strict liability is derived from Anglo-American
law. (307)

II The Concept of Strict Contractual Liability: No Fault Requirement

A The Concept of Strict Liability under General Contract Principles
Under the CISG, the UPICC and the PECL, the right to damages, like other remedies, arises
from the sole fact of non-performance. It is not necessary for the aggrieved party to prove
in addition that the non-performance was due to the fault of the non-performing party.
(308) The degree of difficulty in proving the non-performance will depend upon the
content of the obligation.
In many instances, the determination of the content of the obligation at issue and the
evaluation as to whether non-performance has occurred or not, may be made on the
basis of the distinction between obligations of best efforts and obligations to achieve a
specific result. (309) Where a party's obligation is to produce a given result, its failure to
do so entitles the aggrieved party to damages despite the exercise of all reasonable care
and skill on its part, i.e., regardless of any fault, except where performance is excused. In
case of an obligation of best efforts, the obligor will be liable only if it has not exercised
the care and skill required under the circumstances, regardless of whether a desired (but
not promised) result has occurred.
General contract principles thus essentially follow the Anglo-American concept of strict
liability for breach of contract. The obligor is liable for non-performance if it fails to
perform any of its contractual obligations, unless it proves that there is a ground for
exemption from liability due to an external event beyond its sphere of risk and control.
Absence of fault may only exempt the non-performing party if the force majeure or
hardship exemption applies.
P 62

B The Concept of Strict Liability in Common Law and the Relevance of Fault for
Contract Excuses
The common law in principle treats every contract as containing a guarantee: if the
obligor breaches any of its obligations under the contract, the aggrieved party is entitled

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 to claim damages, regardless of a fault by the non-performing party. If the promised
result has not been procured, the guarantee undertaken has not been observed and a
‘breach of contract’ has occurred. (310) The obligor is only exempted for a non-
performance to the extent that the guarantee does not cover certain obstacles to
performance.
Common law also makes a distinction similar to that between obligations to achieve a
specific result and obligations of best efforts. On the one hand, it has been said to be
‘axiomatic that, in relation to claims for damages for breach of contract, it is, in general,
immaterial why the defendant failed to fulfil his obligations, and certainly no defence to
plead that he had done his best.’ (311) On the other hand, this principle usually does not
apply where services are supplied. (312) In the United Kingdom, Section 13 of the Supply
of Goods and Services Act 1982, entitled ‘Implied term about care and skill’, states: ‘In a
contract for the supply of a service where the supplier is acting in the course of a
business, there is an implied term that the supplier will carry out the service with
reasonable care and skill.’
Anglo-American law recognizes certain instances where the non-performing party,
although strictly liable in principle, is nevertheless exempted from liability for a breach
of contract. This is primarily achieved by implying limits of the non-performing party's
contractual guarantee in the contract. (313) Where obstacles to performance arise
subsequently to the contract, the non-performing party may be relieved from its
guarantee liability on the basis of the doctrine of frustration or frustration of purpose.
(314)
In the United States, the common law development was synthesized in § 2-615 UCC,
P 63 ‘Excuse by Failure of Presupposed Conditions’, referred to as the doctrine of
impracticability. (315) A party to a contract governed by Article 2 UCC regarding sales
contracts must answer in damages for its failure to perform in the absence of an excuse
for its non-performance under § 2-615 UCC (‘Impracticability’), § 2-613 (‘Casualty to
Identified Goods’), (316) or some doctrine or rule from common law, such as frustration of
purpose. (317)
Both under § 2-613 UCC and the doctrine of impracticability, it is required that the
‘casualty’ or ‘impracticability’ must have resulted without the fault of the party seeking to
be excused. Farnsworth notes: (318)
This rather obvious requirement appears in Restatement Second § 261 but not
in UCC 2-615, although presumably it should be read in. It appears in UCC 2-
613 (…) For example, a seller that is unable to deliver goods because they have
been destroyed due to the seller's negligence is not excused. Neither is a
party excused if unable to perform personal services because of a disability
resulting from the party's own misconduct.
In common law jurisdictions, a party can generally not rely on the doctrine of discharge
where the supervening event is brought about by its own fault. (319) However, absence of
fault is only one requirement among others. Under the above exemptions, the
contractual assumption of a particular risk is a primary prerequisite for their application.
The Official Comment on § 2-613 UCC emphasizes that ‘the essential question in
determining whether the rules of this section are to be applied is whether the seller has
or has not undertaken the responsibility for the continued existence of the goods in
proper condition through the time of agreed or expected delivery’. (320) The obligor's
failure to perform may therefore not be excused even though the obligor is not at fault in
the sense of want of care or diligence. As pointed out by Treitel: (321)
Although deliberate and careless conduct is thus generally sufficient to
prevent a party from relying on the doctrine of discharge, it is not necessary
for this purpose. It has, for example, been held that a seller whose goods are
taken in execution, and who therefore cannot deliver them under a contract of
P 64 sale, is not excused as he is considered to be at ‘fault’. (322) Yet the
execution may be due to his inability to perform a previous contract because
his source of finance or of generic goods has failed without any fault on his
part. To accommodate such cases, the Restatement 2d has a broad definition
of ‘fault’ to include ‘not only “wilful” wrongs but such other types of conduct as
that amounting to breach of contract or to negligence’. (323) (Emphasis added)
In view of the above, it appears that the absence of fault requirement could be replaced
by the objective requirement that (in terms of the doctrines of exemption under American
law) the casualty to identified goods or impracticability must have occurred due to an
impediment beyond the control of the obligor and without the obligor having assumed
the risk of its occurrence, that is, the general standard of the ‘force majeure’ excuse
(Article 79 CISG, Article 7.1.7 UPICC). Of course, this formula, especially the requirement
that the impediment must be beyond the obligor's control, also includes elements of
fault. If the obligor is at fault with regard to the supervening event, the impediment to
performance is not beyond its control. Inversely, absence of fault does not necessarily
imply that the impediment is beyond the obligor's control (especially if the obligor has
assumed the relevant risk). Nevertheless, the force majeure standard is to be preferred,
as it avoids the potentially misleading and circular approach of the Restatement 2d to

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 define ‘fault’ in this context as including ‘breach of contract’. (324)
The above-described common law approach is very similar to the approach adopted by
civil law systems. (325) For example, the revised § 276 BGB is also based on the fault
principle, but makes it clear that proof of absence of fault should only relieve a party in
breach from liability if nothing different emerges from the terms of the contract, ‘in
particular the assumption of a guarantee or the procurement risk’. (326) Similarly, under
Dutch law (Article 6:75 NBW), a two-stage test applies: the non-performance cannot be
imputed to the obligor (i) if it is not at fault and (ii) if the non-performance does not fall
within its sphere of risk. (327) The fault requirement again appears to be equivalent to the
P 65 prerequisite under the general ‘force majeure’ excuse that the impediment must be
beyond the sphere of control of the obligor and that the obligor did not assume the risk
of its occurrence, particularly that it could not reasonably be expected to foresee the
impediment or to avoid or overcome its consequences. (328) The elements of
foreseeability and avoidability (including insurmountability) of a certain impediment are
also typical elements of the negligence standard where liability is based on fault. (329)
It has therefore been rightly pointed out that ‘[w]hen allocating liability for disturbances
to performance, most legal systems combine elements of fault and of strict liability,
whether their theoretical starting point be the fault principle or the guarantee principle’.
(330)

C The Concept of Liability Based on Fault in Civil Law and Its Restrictions
Many civil law systems endorse the principle that breach of contract presupposes fault of
the non-performing party. (331) Thus conceptually, the Anglo-American principle of strict
liability for breach of contract is fundamentally opposed to the traditional civil law
approach. However, if the situation is examined more closely, the opposition between
these two basic approaches is considerably mitigated by concessions on both sides. It
has been seen above that the exemptions for non-performance recognized by Anglo-
American law ascribe some relevance to the absence of fault of the party seeking to be
excused. The continental legal systems use some techniques which draw liability based on
fault closer to the concept of strict liability. The fault principle is considerably limited in
various respects:
– Objective standard of negligence. Under the objective standard of negligence, which
applies in the German legal family, the obligor's conduct is not to be assessed by
reference to its own capabilities, but to the standard of care which generally
prevails in its trade or profession. (332) The consequence of such an objective
P 66 standard is that to a very large degree, the obligor may only succeed in proving
that it is not at fault if there is an exemption for non-performance due to a force
majeure event or interference by the obligee. (333)
– Burden of proof regarding fault. An important limitation of the fault principle lies in
the fact that the obligor usually bears the evidentiary burden of proving the
absence of fault. (334) As a result, fault is presumed, so that the obligee may limit
itself to proving the breach of an obligation, damages and a sufficient causal link
between the breach and the alleged damages.
– Vicarious liability for so-called auxiliary persons (third parties) such as employees,
agents or subcontractors used to perform the obligation. The statutory liability for
such third parties as especially set forth in German and Swiss law has a ‘quasi-
causal’ origin. The obligor's exoneration is subject to the absence of a ‘hypothetical’
fault: it must be determined whether under the standard of fault applicable to the
obligor, the non-performance attributable to an act or omission of the auxiliary
person is to be qualified as fault if the obligor had acted or omitted to act in lieu of
the auxiliary person. (335)
– Obligations to deliver generic goods. By stipulating to procure or deliver generic
goods, the obligor guarantees its capacity to perform. As long as any species of
generic goods is in existence, the obligor is held liable if it cannot procure or
deliver on time or at all, regardless of whether it is at fault or not. (336) The seller
who undertakes to procure generic goods assumes a procurement risk. This
‘important inroad into the fault principle’ (337) is now explicitly recognized in the
revised German BGB. (338)
– Liability for the non-conformity (quality) of goods sold. Influenced by Roman law, all
civil law systems entitle the buyer to terminate the contract (‘Wandlung’) or to
reduce the purchase price (‘Minderung’) in case of non-conformity of goods sold,
regardless of whether the seller is at fault. (339) As such, the seller is strictly liable.
Similar rules sometimes apply to other specific types of contracts, e.g., work
contracts or leases. (340) However, the civil law systems diverge in respect of the
question as to whether the buyer may also claim damages in the absence of fault by
the seller. (341)
P 67
The difference between the concept of strict liability and the concept of liability based
on fault fades even more if the definition of fault as well as the relationship between the
fault requirement and the requirement of contractual non-performance is taken into
account.

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 Under French law – as well as under Belgian, Dutch and Luxembourgian law (342) – a
claim for damages will only succeed if the circumstances which prevented the
performance of the contract are ‘imputable’ to the obligor. Article 1147 of the French
Code civil provides that an obligor in default is freed from liability in damages only if
‘l'inexécution provient d'une cause étrangère qui ne peut lui être imputée’. Article 1148 Code
civil restates the same rule by providing that an obstacle to performance serves as a
defence only if it occurs ‘par suite d'une force majeure ou d'un cas fortuit’. The terms ‘force
majeure’ and ‘cas fortuit’ are used as synonyms. Case law and legal writers agree that they
can only be invoked if the obligor is free from fault, and that absence of fault and
exemption for non-performance due to force majeure are virtually equivalent. (343) As a
consequence, it has been noted that any non-performance of a contractual obligation,
when arising from the obligor, is a ‘fault’, whether the breached obligation is one of best
efforts or one to reach a specific result, subject only to an exemption (force majeure,
interference by the obligee) which must be proven by the obligor. (344) Thus, fault is not a
condition different from that of the non-performance of the contract. (345) In effect, the
French system appears to be almost identical to the concept of strict liability where the
obligor is only freed from liability in damages if the non-performance is excused. Given
this conceptual approach, it is not surprising that the French doctrine has focused on the
determination of the content of a party's performance obligation. It has developed the
distinction between ‘obligations de résultat’ (result-oriented obligations) and ‘obligations
de moyens’ (obligations of best efforts or conduct-oriented obligations). Accordingly, the
obligee must prove that the obligor of an ‘obligations de moyens’ did not act with the care
which he had undertaken to exercise. In case of an ‘obligation de résultat’, the obligee
must only prove that the result which the obligor undertook to provide has not been
achieved. In either case the obligor is excused by force majeure, which extinguishes the
obligation. (346)
P 68
In contrast, Swiss law makes in principle a clear distinction between the fault
requirement and the requirement of non-performance. The obligor is at fault when it is
responsible for the non-performance because it has not observed the required diligence
to comply with its obligations, whether intentionally or by negligence. (347)
However, as far as obligations of best efforts are concerned, the distinction between non-
performance and fault loses almost all practical relevance. In theory, the question
whether the obligor discharged its obligation with due diligence is to be examined twice:
on the one hand, in order to determine whether the obligor has breached its contractual
duties (i.e., whether the requirement of non-performance is met), and on the other hand,
to examine whether the obligor is at fault. In its more recent case law, the Swiss Federal
Tribunal has focused on the requirement of non-performance, without distinguishing any
elements which may have to be examined under the requirement of non-performance or
the requirement of fault. (348) In fact, for practical purposes, fault is to a large degree
merely the other side of the coin of non-performance, i.e., a reproachable act or omission
consisting of the non-compliance with the required degree of care.
With regard to obligations to achieve a specific result, Swiss law maintains – in theory – the
distinction between non-performance and fault if the obligee claims damages. (349) Yet,
in effect, where non-performance of an obligation to achieve a specific result is
established, the obligor may only succeed in proving that it is not at fault in case of a
force majeure event or interference by the obligee. (350) Hence the approach of Swiss law
is in its results quite similar to the French concept. (351)

D Conclusion
A comparative analysis of the different concepts from which the civil law systems and the
common law start out, shows that despite the theoretical differences, the practical
P 69 results are very similar: (352) ‘[T]he different principles (…) are subject to so many
exceptions and qualifications that in practice the difference between them is nothing
like as great as one might at first suppose.’ (353) The continental legal systems are
traditionally based on the so-called fault principle (‘Verschuldensprinzip’), but this
principle is subject to numerous exceptions. In terms of practical results, the obligor will
generally only be released due to absence of fault if it can either show that an event
beyond its control caused the non-performance, i.e., a ‘force majeure’ event or an
interference by the obligee. The exemptions for non-performance under Anglo-American
law are generally also only available in situations of force majeure or interference by the
obligee. Jones and Schlechtriem have noted: (353a)
Whether CISG art. 79 par. 1 can be regarded as an offspring of the Civil Law
fault principle, as is sometimes said, or of the Common Law guarantee liability
with only very narrow excuses for e.g. acts of God or the king's enemy, seems to
be a hypothetical problem showing only that the rift between fault principle
and guaranteed performance is only a matter of how to label the excusing
impediments and circumstances.
Thus, the unitary concept of non-performance without regard to fault, coupled with the
‘force majeure’ excuse adopted by the CISG (together with the exemption due to
interference by the other party), has bridged the gap between the different conceptual

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 approaches of civil and common law. (354) The fact that this unitary concept has been
adopted and promoted by the CISG is of utmost significance. As stated by Zweigert and
Kötz: (355)
The Convention is of particular interest to us because in its global treatment of
breach of contract, based on intensive comparative legal studies, it ‘resolves
in a higher unity the peculiarities still remaining in national laws from times
past, and does so without any loss and with very great gain’.
The legislative history of Article 79 CISG also shows that there is hardly any material
difference between the concept of presumed fault and the concept of strict contractual
liability. Article 50 of the 1976 Geneva Draft provided that where a party fails to perform
one of its obligations, it is not liable in damages if it proves that this is due to an
impediment which occurred without fault on its part. Fault was therefore presumed. (356)
In reformulating the grounds for exemption in Article 51 of the 1977 Vienna Draft, the
requirement that the obligor, in order not to be liable to pay damages, should not be at
P 70 fault, was abandoned and replaced by an objective test of the ‘impediment beyond
control’. In doing so, account was taken of the fact that the fault requirement in Article 50
of the 1976 Geneva Draft was already based on an objective concept of fault. (357) This
conceptual change was therefore made on the assumption that it did not materially alter
the applicable standard.
Furthermore, according to the test of Article 79 CISG, subjective elements, i.e., elements of
fault, are also to be considered, especially in connection with the question whether the
impediment was beyond the obligor's control and whether the impediment was
reasonably foreseeable and could have been avoided or overcome. It has therefore
rightly been pointed out that the exemption of Article 79 CISG ‘does not differ from the
fault principle as much as might first be supposed’. (358)

III The Requirement of Non-performance in Particular: Distinction between

Obligations of Best Efforts and Obligations to Achieve a Specific Result
A defendant that is confronted with a contractual damages claim will first of all try to
adduce counter evidence showing that it has not breached the contract. Exemptions for
non-performance are only relevant if a non-performance has occurred. The contractual
obligations may be explicitly set forth in the contract or implied. (359) They may also
result from general principles as provided in Chapter 5 (‘Content’) and Chapter 6
(‘Performance’) of the UPICC. (360) The question whether non-performance has occurred
or not will depend on the content of the contractual obligation. In order to make such
determination, it may be helpful to examine whether the obligation is one to achieve a
specific result (result-oriented obligation) or one of best efforts (conduct-oriented
obligation). (361) An obligation of best efforts is satisfied by performing a particular
activity with due diligence, with the aim of achieving a desired result, but without
guaranteeing it. This distinction is particularly relevant where a party is under an
P 71 obligation to render services or generally to undertake an activity, inasmuch as the
desired result is not achieved and it is unclear whether the obligation is meant to be
result-oriented or not. It corresponds to two frequent and typical degrees of severity in
the assumption of a contractual obligation, and is explicitly referred to in the UPICC.
Article 5.1.4 UPICC (‘Duty to achieve a specific result; Duty of best efforts’) states: (362)
(1) To the extent that an obligation of a party involves a duty to achieve a specific
result, that party is bound to achieve that result.
(2) To the extent that an obligation of a party involves a duty of best efforts in the
performance of an activity, that party is bound to make such efforts as would be
made by a reasonable person of the same kind in the same circumstances.
The distinction is aimed at providing courts with criteria by which correct performance can
be evaluated. As pointed in Comment No. 2 on Article 5.1.4 UPICC:
In the case of an obligation to achieve a specific result, a party is bound
simply to achieve the promised result, failure to achieve which amounts in
itself to non-performance, subject to the application of the force majeure
provision (Art. 7.1.7). On the other hand, the assessment of non-performance of
an obligation of best efforts calls for a less severe judgment, based on a
comparison with the efforts a reasonable person of the same kind would have
made in similar circumstances. This distinction signifies that more will be
expected from a highly specialised firm selected for its expertise than from a
less sophisticated partner.
The distinction has a bearing on the extent of the obligee's burden of proof. In case of an
obligation to achieve a specific result, it is sufficient for the obligee to prove that the
aimed for result has not been reached. When the obligation is one of best efforts, that
proof is not sufficient. The mere fact that the result has not been achieved does not
necessarily mean that the obligor has not properly performed its obligation; in addition,
the obligee must prove that the obligor has not discharged its obligations with the
diligence required under the circumstances. (363)

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 Conceptually, the force majeure defence is only relevant in the case of a breach of an
obligation to achieve a particular result. Where the obligor has merely committed itself
to use its best efforts, the obligee must prove a lack of care on the part of the obligor in
order to prove the occurrence of non-performance. By definition, this lack of care cannot
be established if the harm is caused by an unforeseeable and unavoidable impediment
beyond the obligor's control (force majeure event). (364) Since the force majeure excuse
P 72 presupposes that there is some kind of non-performance, it may not apply if there is
no breach of an obligation (of best efforts) in the first place. However, for evidentiary
purposes, i.e., to prove the absence of a lack of due care, it may of course nevertheless be
helpful, or even indispensable, for the obligor to show that the harm was caused by an
impediment beyond its control.
The determination of the nature of the obligation is generally to be assessed through
contract interpretation. (365) When interpreting the contract to that end, regard can be
had to Article 5.1.5 UPICC which sets out criteria that may offer guidance for determining
whether an obligation involves a duty to achieve a specific result or simply a duty of best
efforts. (366)
To illustrate, in the following instances a party's commitment is to be qualified as an
obligation of best efforts: (367) a party commits to exercise its best efforts to promote the
products of the other party to the contract; (368) a party commits to put forth the best
efforts to provide the necessary technology; an architect undertakes to offer a reasonable
standard of skill and diligence normally expected and accepted by the profession of
architecture; a contractor commits to try to complete the works before a given date. If
the obligation is expressed by words such as ‘will take all necessary steps’, ‘will do all
that is possible and within its capabilities’ or ‘will undertake reasonable endeavours’, the
commitment of the obligor is usually to be defined as an obligation of best efforts. In
P 73 those cases, an objective standard of diligence applies in order to evaluate whether
the obligor has properly discharged its obligations or not: the obligor ‘is bound to make
such efforts as would be made by a reasonable person of the same kind in the same
circumstances’ (Article 5.1.4(2) UPICC). If the performance of a contract extends over a
certain period of time, the applicable standard of ‘due diligence’ usually evolves along
with the technical progress and the state of knowledge and standard practice in the
relevant field. (369) Besides, as confirmed by case law of American and English courts,
there is in general no difference between the standards of ‘best efforts’ or ‘reasonable
efforts’. (370) English courts use the reasonableness standard to determine the scope of a
duty of best efforts. Both standards are to be applied in a way that adequately fits the
purpose of the contract and the particular circumstances. (371)
In contrast, a party commits to achieve a specific result if the obligor guarantees a certain
result or if the undertaking is otherwise result-oriented. For example, an obligation to
achieve a specific result exists where a party supplying and installing a heating system
commits that the system will reach a certain performance (372) or, as regards the time of
performance, if a contractor commits that the works will be completed at or before a
given date, or where a distributor undertakes to reach a quota of 10,000 sales of a
particular product within a year in the contract zone. Moreover, most of the obligations
arising under a contract of sale or work contracts are obligations to achieve a specific
result, in particular the seller's (contractor's) obligation to deliver and transfer the
property, and the buyer's obligation to pay the price. The specific result to be achieved is
determined by the contract or the applicable law, for example, the provisions regarding
the quality of goods. (373)
However, as obligations of both types of contractual duties may coexist in the same
contract, sale or work contracts may also involve duties of best efforts. For instance, a
firm that repairs a defective machine may be considered to be under a duty of best
efforts concerning the quality of the repair work in general, but under a duty to achieve a
specific result as regards the replacement of certain spare parts. (374) Also, the seller's or
the buyer's obligation to preserve the goods under Articles 85-86 CISG merely involves a
duty of best efforts: if the relevant party ‘take[s] such steps as are reasonable in the
P 74 circumstances to preserve them’, it will not be liable if the goods nevertheless perish
or are damaged. (375) By the same token, if a party that is bound to take steps to
preserve the goods deposits them in a warehouse with a depositary (Article 87 CISG), it is
fully discharged from its obligation of best efforts even if the goods perish as a result of a
negligence by the depositary, provided only that the decision to deposit the goods and
the selection of the depositary was made with reasonable care, and, as the case may be,
that appropriate insurance cover was obtained for the goods. (376) Since the depositing
party does not owe a specific result (preservation of the goods), the depositary is not a
‘third person’ for which the depositing party is responsible. (377)
The question as to whether non-performance occurred or not is in many cases not a
question of law, but involves the interpretation of the facts. (378) Uncertainties will thus
mainly be linked to the assessment of the circumstances to which courts must necessarily
proceed, and the determination will especially depend on the degree of specificity with
P 74 which the efforts or result required is defined in the contract.

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 References
282) See, e.g., Enderlein/Maskow, Art. 45 CISG para. 1 (p. 174); Lando/Beale, Comment on
Art. 1:301(4) PECL (p. 123); Comment on Art. 7.1.1 UPICC; infra pp. 58 ff.
283) See Art. 25 CISG, Art. 8:103 PECL; Art. 7.3.1 UPICC.
284) Arts 49(1)(a), 51(2), 64(1)(a), 73 CISG; Arts 7.3.1, 7.3.3 UPICC; Arts 9:301, 9:302 PECL.
Termination may also be sought in case of an anticipatory fundamental breach:
Art. 72(1) CISG; Art. 7.3.3 UPICC; Art. 9:304 PECL. See infra pp. 366 ff.
285) See infra pp. 61 ff.
286) For the exemption due to interference by the other party, see infra pp. 113 ff.
287) Infra pp. 213 ff., 401 ff.
288) See Comment on Art. 7.3.1 UPICC; Comment on Art. 7.1.1 UPICC; Lando/Beale,
Comment B on Art. 8:101 PECL (pp. 359-60). See generally infra pp. 345 ff.
289) The distinction (shared by many civil law systems) made by the 1964 Hague
Convention on Sales (ULIS) between several types of breach and its corresponding
division of remedies was relinquished in favour of two basic contractual violations
with largely uniform remedies: breach of contract by the seller and breach of
contract by the buyer, Art. 45 CISG and Art. 61 CISG, respectively (Schlechtriem,
‘Uniform Sales Law’, 63). Under these provisions, the notion ‘failure to perform’
encompasses any obligations regardless of a total or partial non-performance, late
performance or performance of goods that are not in conformity with the contract,
the type of obligations involved (‘principal’ or ‘ancillary’) or the reason for the
failure. In particular, the seller also fails to perform if it delivers goods that are not
in conformity with the contract (Art. 35 CISG), ‘it being irrelevant whether the goods
are not of the agreed quality (i.e. they are defective), not of the type agreed to be
delivered (i.e. an ‘aliud’), or whether the wrong quantity has been delivered’
(Huber, in Schlechtriem (1998), Art. 45 CISG para. 5).
290) Lando/Beale, Comment on Art. 1:301(4) PECL (p. 124).
291) Lando/Beale, id., and Note No. 2 on Art. 1:301(4) PECL (p. 361); § 2-615 UCC;
Comment b. on § 234 Restatement (2d) of Contracts. Treitel (in The Law of Contract,
772) states: ‘A breach of contract is committed when a party without lawful excuse
fails or refuses to perform what is due from him under the contract, or performs
defectively or incapacitates himself from performing.’
292) Art. 7.1.1 UPICC; Arts 1:301(4) (Definition of ‘non-performance’), 8:101 PECL.
293) See Art. 5.1.3 UPICC; Art. 1:202 PECL. For example, the duty of the seller to send the
buyer a correct invoice or the duty of the contractor not to disclose trade secrets.
294) For example in a contract of sales, the obligation to deliver the goods and transfer
the property (see Art. 30 CISG).
295) Such ‘ancillary’ obligations are derived from the principle of good faith and
include duties to protect, warn or inform the other party.
296) Regarding time of performance see Art. 33 CISG; Art. 6.1.1 UPICC; Art. 7:102 PECL.
297) See Arts 37, 48 CISG; Art. 7.1.4 UPICC; Art. 8:104 PECL. The wording of these provisions
is not uniform. Art. 7.1.4 UPICC requires, among others, that ‘cure is appropriate in
the circumstances’.
298) For the relationship between the right to terminate for fundamental non-
performance and the right to cure, See, e.g., Müller-Chen, in
Schlechtriem/Schwenzer, Art. 48 CISG paras 14 ff.; Brunner, Art. 48 CISG paras 7 ff.
299) Zweigert/Kötz, 496 ff.
300) Zweigert/Kötz, 488 ff., 510, 512; Drobnig, ‘General Principles of European Contract
Law’, 317. In addition, following Roman traditions, defects of individual goods are
dealt with on a special basis.
301) Zweigert/Kötz at 512. They note in particular (id.): ‘The German BGB was flawed at
birth by its unfortunate division of breaches of contract into impossibility, in its
various forms, and delay. So incomplete was this coverage that the courts had to
adopt the institution of ‘positive breach of contract’ as a residual category for the
types of breach of contract not covered.’
302) Jones/Schlechtriem, para. 136 (p. 87).
303) Id.
304) § 280(1) BGB.
305) See Schlechtriem, Oxford U Comparative L Forum 2 (2002), text at n. 31 (Ch. 1).
306) See Zweigert/Kötz, 496 ff., 500; Lando/Beale, Notes Nos 1 and 2 on Art. 1:301(4) PECL
(pp. 361-62).
307) For the common law approach in general see Zweigert/Kötz, 503-510.
308) See Arts 45, 61, 74 CISG; Arts 7.4.1 UPICC and Comment No. 1; Arts 8:101, 9:501 PECL
and Lando/Beale, Comment B. on Art. 9:501 PECL (p. 434). See also Comment b. on §
234 Restatement (2d) of Contracts: ‘When performance is due … anything short of
full performance is a breach, even if the party who does not fully perform was not
at fault and even if the defect in his performance was not substantial.’
309) See infra pp. 70 ff.

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 310) Zweigert/Kötz, 503. As regards the distinction between a claim for damages and the
right to terminate the contract (or the aggrieved party's right to refuse
performance of its own obligations) if the breach is of an ‘essential’ term or
‘material’ see id., at 505-07. In particular, English lawyers distinguish between
‘warranty’ (every contractual term, express or implied, is in law a ‘warranty’, and if
it is broken, the aggrieved party is entitled to claim damages for breach of
contract) and ‘condition’ (an essential term of a contract whose non-performance
gives the aggrieved party the right to declare the contract discharged, i.e.,
terminated). Id. at 505.
311) Lord Edmund-Davies in Raineri v. Miles, (1981) AC 1050, 1086; Treitel, Frustration and
Force Majeure, para. 1-003 (p. 4).
312) Zweigert/Kötz, 504.
313) Drobnig, ‘General Principles of European Contract Law’, 319. This conceptual
approach is especially illustrated by § 261 of the Restatement (2d) of Contracts
(‘Discharge by Supervening Impracticability’), which states: ‘Where, after a contract
is made, a party's performance is made impracticable without his fault by the
occurrence of an event the non-occurrence of which was a basic assumption on
which the contract was made, his duty to render that performance is discharged,
unless the language or the circumstances indicate the contrary.’ (emphasis added)
314) See infra pp. 88 ff.
315) See also n. 313 and infra pp. 94 ff.
316) § 2-613 (‘Casualty to Identified Goods’) states: ‘Where the contract requires for its
performance goods identified when the contract is made, and the goods suffer
casualty without fault of either party before the risk of loss passes to the buyer, or
… then (a) if the loss is total the contract is avoided. …’
317) As authorized by § 1-103 UCC (‘Supplementary General Principles of Law
Applicable’). See Jenkins, Tul. L. Rev. 72, 2015-16 (1998).
318) On Contracts, 606, 614.
319) Treitel, Remedies for Breach of Contract (1988), para. 31 (p. 35).
320) See also Zweigert/Kötz, 509, noting with regard to § 2-613 UCC and s. 6 of the
English Sale of Goods Act that ‘[e]ven so, the courts of England and the United
States are always careful to check whether on a proper construction of the contract
one party may not have taken the risk of the possibility of performance’.
321) Remedies for Breach of Contract (1988), para. 31 (p. 35).
322) [Footnote 35 in the original] Western Drug Supply etc. & Co. v. Board of
Administrators of Kansas, 187 p. 701 (1920).
323) [Footnote 37 in the original] § 261, Comment d.
324) In Black's Law Dictionary, ‘breach of contract’ is defined as failure, without legal
excuse, to perform any promise which forms the whole or part of a contract. See
also supra n. 291.
325) See Treitel, Remedies for Breach of Contract (1988), para. 31 (p. 36) and infra p. 65
ff., 86 ff.
326) See infra p. 86 at n. 432; see also Zweigert/Kötz, 514 with regard to a previous draft
of § 276 BGB.
327) Smits, 342. This reading of Art. 6:75 NBW, which is to define ‘force majeure’ (id.), is
not self-evident in view of its wording: ‘A failure in the performance cannot be
imputed to the debtor if it does not result from his fault, and if he cannot be held
accountable for it by law, juridical act or common opinion either.’ The notion
‘accountable for it by law’ especially includes a reference to Art. 6:76 NBW
regarding liability for third persons. The term ‘juridical acts’ refers to situations of
contractual risk allocation, and the term ‘common opinion’ especially includes
situations where ‘the non-performance is caused by the obligor's own financial
position, illness or inexperience’ (Smits, id., at 342).
328) See Smits, 342. In discussing the absence of fault requirement under Art. 6:75 NBW,
he notes: ‘Fault. The first test is whether the debtor can be blamed for the non-
performance. He cannot be blamed if the non-performance has been caused by an
event which he could not reasonably prevent and of which he was unable to avoid
the consequences.’
329) For German law see Heinrichs, in Palandt, § 276 BGB paras 20-21; Schulze, in
Handkommentar, § 276 BGB paras 11-12.
330) Stoll, in Schlechtriem (1998), Art. 79 CISG para. 9.
331) See, e.g., Art. 97(1) Swiss CO (infra n. 334); Art. 1147 French Code civil (infra n. 343);
Art. 1218 Italian Codice civile; §§ 280(1), 276(1) German BGB. In the Romanic legal
systems, the significance of the fault principle for contractual liability is less well
developed than in the civil codes of the German legal community
(Jones/Schlechtriem, para. 203, p. 129 at n. 1056). Under Roman law, the obligor was
exonerated if the obstacle to performance came about without fault on its part
(Magnus, ‘Force Majeure and the CISG’, 1; Zimmermann, The Law of Obligations, 806-
08).
332) Jones/Schlechtriem, para. 235 p. 146 with references at n. 1178.
333) See the references infra at n. 350.

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 334) For example, Art. 97 of the Swiss CO states: ‘If the performance of an obligation
cannot at all or not duly be effected, the obligor shall compensate for the damage
arising therefrom, unless it proves that no fault at all is attributable to it.’
(Emphasis added) See also § 280(1) second sentence BGB; § 1298 ABGB;
Jones/Schlechtriem, para. 235 (p. 147).
335) See Art. 101 CO; § 278 BGB. Under Swiss law it is disputed whether suppliers
(‘Zulieferer’) are also to be characterized as ‘auxiliary persons’ within the meaning
of Art. 101 CO (see Wiegand, in Basler Kommentar, Art. 101 CO paras 7-9).
336) See Jones/Schlechtriem, para. 207 (p. 131) and references at n. 1069.
337) Jones/Schlechtriem, para. 214 (p. 134).
338) § 276 BGB; see infra 86 at n. 432.
339) In addition, the buyer may be entitled to request substitute performance or repair
(see §§ 437(1), 439(1) BGB).
340) See Jones/Schlechtriem, para. 237 (p. 148) at n. 1187.
341) See Art. 205 CO (no fault required for ‘direct’ as opposed to ‘indirect’ damages,
infra at n. 349); §§ 437, 280(1), 276(1) BGB (in particular, no fault required if the
seller has assumed a guarantee). Under the case law regarding Art. 1645 of the
French Code civil, the merchant-seller is liable without regard to fault for the
compensation of all losses caused by the breach; the non-merchant seller is only
liable for payment of the buyer's costs incurred in connection with the contract
unless it had knowledge of the defect (Jones/Schlechtriem, para. 237 (pp. 148-49)
and references there).
342) Lando/Beale, Note No. 2 on Art. 1:301(4) PECL (p. 362). Spanish law has developed
on similar lines (id.). Cf. also Fontaine/de Ly, 472 and references there.
343) See Zweigert/Kötz, 500; Jones/Schlechtriem, para. 236 (p. 147).
344) Chappuis, RDAI (2002): 288-89, citing Mazeaud/Chabas, Leçons de droit civil,
Obligations, théorie générale (1998), para. 436, (p. 443), paras 572 ff.
345) See Chappuis, RDAI (2002): 289.
346) Lando/Beale, Note No. 2 on Art. 1:301(4) PECL (p. 362); on the distinction between
obligations of best efforts and obligations to achieve a specific result see infra pp.
70 ff.
347) See Art. 97(1) CO (supra n. 334); Weber, in Berner Kommentar, Art. 99 CO para. 27;
Schwenzer, OR AT, paras 22.01 ff., 22.14 ff., 22.18 ff.
348) See, e.g., BGE 120 II 248, s. 2 (1994); BGE 117 II 563 s. 2a (1991); BGE 105 II 284 s. 1
(1979); Grieder, 136 ff.; Walter, ‘Abgrenzung von Verschulden und
Vertragsverletzungen bei Dienstleistungsobligationen’ (1998), 43 ff., 62 ff.; Wiegand,
recht 1990, 140 ff.; Werro, ‘La distinction entre l'obligation de résultat et
l'obligation de moyens’, ZSR (1997): I 253 ff.; Weber, Berner Kommentar, Art. 99 CO
paras 84-85; Gauch/Schluep/Schmid/Rey, para. 2795.
349) For sales contracts see Art. 208(3) CO (indirect damages, as opposed to direct
damages, are only due if the seller is at fault; the seller's fault is presumed); for
work contracts see Art. 368(1) CO (damages resulting from a defect are only due if
the contractor is at fault; the contractor's fault is presumed).
350) See Bucher, OR AT, 347; Wiegand, in Basler Kommentar, Art. 97 CO para. 42;
Chappuis, RDAI (2002): 289, 291 (regarding the duty of best efforts; see also infra p.
71); Rouiller, 688-690; for case law see Weber, in Berner Kommentar, Art. 97 CO para.
328, Art. 99 CO para. 130.
351) See Chappuis, 289.
352) See Treitel, Remedies for Breach of Contract (1988), Ch. 2 (Fault), pp. 7-42;
Zweigert/Kötz, 510, 513; Jones/Schlechtriem, paras 203, 235 ff. (pp. 129-35, 146-49);
Schlechtriem, ZEuP (1993): 228 ff.; Zimmermann, ‘Breach of Contract and Remedies
under the New German Law of Obligations’, 17-18; Perillo, ‘Force Majeure and
Hardship Under the UNIDROIT Principles’, Pace Database, text at n. 30 (Ch. 1);
Nicholas, ‘Force Majeure and Frustration’, Am. J. Comp. L. 27 (1979): 231;
Werro/Belser, 371, 376-77.
353) Zweigert/Kötz, 510.
353a) Jones/Schlechtriem, para. 205 (p. 130).
354) Cf. Zweigert/Kötz, id.; Jones/Schlechtriem, id.; Lando/Beale, Notes No. 1 and 2 on
Art. 1:301(4) PECL (pp. 361-62).
355) At 511, citing Rabel, in RabelsZ 1935, 6.
356) Stoll, in Schlechtriem (1998), Art. 79 CISG paras 1-2.
357) Id. at para. 3 with reference to VIII YB 56, Nos 455-7 (1977).
358) Stoll, id., at para. 9.
359) See Arts 5.1.1, 5.1.2 UPICC; Art. 6:102 PECL.
360) For instance regarding the determination of quality of performance (Art. 5.1.6
UPICC), price determination (Art. 5.1.7 UPICC), time of performance (Art. 6.1.1 UPICC),
place of performance (Art. 6.1.6 UPICC), etc.

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 361) The distinction between these types of obligations has especially been developed
in French law; see generally Chappuis, RDAI (2002): 281, 284 ff.; Zweigert/Kötz, 501-
02; Jones/Schlechtriem, para. 236 (p. 147); supra p. 67. In other civil law
jurisdictions, the distinction is also well-known but has more limited repercussions
than in French law. In German and Swiss law, the main purpose of this distinction is
to differentiate work contracts (§§ 631 ff. BGB; Arts 363 CO) from mandates and
service contracts (§§ 662 ff. BGB; Arts 394 ff. CO) (distinction between ‘Werk’ and
‘wirken’; see Chappuis, id., at 286; Werro/Belser, 366-67). Jones/Schlechtriem (at
paras 15-16), point out that in civil law, ‘[a]ll legal systems under consideration
here distinguish between obligations that require only a doing (or a non-doing),
and those which require that a certain result is achieved by the obligor in order to
perform and discharge the respective obligation. … At common law, it is a question
of the construction of the contract whether the obligor has promised a result or has
merely promised his best endeavours to achieve a result.’
362) In the 1994 edition of the UPICC, the relevant (identical) provision was Art. 5.4.
363) See Chappuis, RDAI (2002): 285, 287.
364) See Werro/Belser, 375; Lando, ‘Non-Performance (Breach) of Contracts’, 338-39;
Pichonnaz, paras 520 ff., 536 ff. (regarding impossibility of performance).
365) Cf. Comment No. 1 on Art. 5.1.4 UPICC; Chappuis, RDAI (2002): 286;
Jones/Schlechtriem (with regard to common law, supra n. 361); Zweigert/Kötz, 501-
02 (with regard to French law).
366) It states: ‘In determining the extent to which an obligation of a party involves a
duty of best efforts in the performance of an activity or a duty to achieve a specific
result, regard shall be had, among other factors, to:
(a) the way in which the obligation is expressed in the contract
(b) the contractual price and other terms of the contract
(c) the degree of risk normally involved in achieving the expected result, and
(d) the ability of the other party to influence the performance of the obligation.
See also Chappuis, RDAI (2002): 290; Farnsworth, On Contracts, § 7.17b; Farnsworth,
U. Pitt. L. Rev. 46 (1984): 1,9.
367) See Chappuis, RDAI (2002): 285; Comments on Arts 5.1.4, 5.1.5 UPICC.
368) Provisions of best efforts, reasonable efforts or reasonable care are often found in
distribution agreements (Chappuis, id., at 282). See also § 2-306(2) UCC: ‘A lawful
agreement by either the seller or the buyer for exclusive dealing in the kind of
goods concerned imposes unless otherwise agreed an obligation by the seller to
use best efforts to supply the goods and by the buyer to use best efforts to
promote their sale.’ However, distribution contracts may also provide for an
obligation to reach a specific result, as the following illustrations contained in the
Comments on Art. 5.1.4 UPICC show:
1. A, a distributor, promises that it will reach a quota of 15,000 sales within a
year in the contract zone. If at the end of the period A has sold only 13,000
items, it has clearly failed to perform its obligation. See Art. 5.1.4(1). 2. B,
another distributor, promises ‘to use our best efforts to expand the sales of
the product’ in the contract zone, without any stipulation that it must reach a
minimum quantity. This provision creates an obligation of best efforts; (…).
369) Cf. Chappuis, RDAI (2002): 296-97.
370) Chappuis, id., at 294, n. 71-72 (Ch. 1) and references there.
371) For example, in Grossman v. Melinda Lowell, Attorney at Law, P.A., 703 F. Supp. 282
(S.D.N.Y. 1989), a party to a contract for the purchase of real estate that contained a
financing contingency and an obligation of the purchaser to use ‘best efforts’ to
obtain a mortgage within sixty days, was found to have failed to fulfil the best
efforts duty by making but three telephone calls and one mortgage application.
372) See the example in Lando/Beale, Comment B. on Art. 9:501 PECL (p. 434): ‘If A
contracts to supply and install in B's house a central heating system that will
provide a temperature of up to 22 degrees C when the outside temperature is no
greater than 0 degrees C. A installs the system but despite the exercise of all
reasonable care and skill on its part the maximum temperature it can achieve is 18
degrees C. A is liable for damages.’
373) See Art. 35 CISG; §§ 2-313 to 2-317 UCC; Art. 5.1.6 UPICC; Art. 6:108 PECL.
374) Comment No. 1 on Art. 5.1.4 UPICC.
375) The seller is under such an obligation if the buyer fails to take delivery of the goods
or to pay the price when due (Art. 85 CISG); the buyer, if it wishes to reject the
goods (Art. 86 CISG).
376) See Eberstein, in Schlechtriem (1998), Art. 87 CISG para. 8; Bacher, in
Schlechtriem/Schwenzer, Art. 87 CISG para. 6; Magnus, in Staudinger, Art. 87 CISG
para. 6.
377) See Art. 79(2) CISG and infra p. 188.
378) See Chappuis, RDAI (2002): 291, who also notes that in the event of a dispute,
uncertainties regarding best efforts clauses do not arise from potential
discrepancies between the different national legal systems.

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Document information Chapter 4: Force Majeure Excuse, Section 7: The Force
Majeure Excuse as a General Principle of Law
Publication
Force Majeure and
I Salient Features of the Force Majeure Excuse Under General Contract
Hardship under General Principles
Contract Principles: Under general contract principles, the unitary concept of non-performance is matched by
Exemption for Non- an equally unitary concept of defence arising from an impediment to performance
performance in beyond the obligor's control for which the obligor did not assume the risk of its
International Arbitration occurrence (‘force majeure’ excuse or exemption). The excuse may be found in
substantially similar terms in Article 79 of the United Nations Convention on Contracts for
the International Sale of Goods (CISG), Article 7.1.7 of the UNIDROIT Principles of
Bibliographic reference International Commercial Contracts (UPICC) and Article 8:108 of the Principles of
European Contract Law (PECL), as well as in model contract clauses such as the
'Chapter 4: Force Majeure International Chamber of Commerce (ICC) Force Majeure Clause 2003. The UPICC also use
Excuse, Section 7: The Force the term ‘force majeure’ as the title of Article 7.1.7, on the ground that ‘it is widely known
Majeure Excuse as a in international trade practice, as confirmed by the inclusion in many international
General Principle of Law', contracts of so-called “force majeure” clauses’. (379) The excuse reads in the wording used
in Christoph Brunner , Force by Article 7.1.7(1) UPICC (which is basically identical to Article 79(1) CISG) as follows:
Majeure and Hardship
under General Contract Non-performance by a party is excused if that party proves that the non-
Principles: Exemption for performance was due to an impediment beyond its control and that it could
Non-performance in not reasonably be expected to have taken the impediment into account at the
International Arbitration, time of the conclusion of the contract or to have avoided or overcome it or its
International Arbitration consequences.
Law Library, Volume 18
(© Kluwer Law P 76
International; Kluwer Law
International 2008) pp. 75 - Since under general principles of liability for non-performance such non-performance
110 does not require a fault of the non-performing party, the force majeure excuse is equally
not defined as ‘absence of fault’, but rather, uses other criteria. The main thrust of the
test is that the impediment hindering performance must be beyond the control of the
non-performing party and that the non-performing party has not explicitly or implicitly
assumed the risk of its occurrence. The requirement that the risk of the impediment must
not have been assumed by the obligor is not explicitly stated in Article 79 CISG, Article
7.1.7 UPICC or Article 8:108 PECL, but is generally recognized. (380) Where the non-
performing party has guaranteed a certain performance or otherwise assumed the risk of
the occurrence of a certain impediment, it will be liable even though it is not at fault, i.e.,
where it has used its best efforts to achieve the promised result. Thus, while absence of
fault is not a relevant criterion for excuse, the existence of fault with regard to the
occurrence of an impediment excludes the application of the exemption. In the case of
faulty behaviour by the non-performing party, the impediment is not beyond that party's
control, or the impediment may have been reasonably fore-seeable, avoidable or
superable. (381)
Corresponding to the unitary concept of non-performance which does not distinguish
between different types of failure to perform such as delay, defective performance or
partial or complete impossibility of performance, the force majeure excuse may be
applicable to all types of non-performance. It may thus apply to any obligation arising out
of the contract, including obligations to pay money (382) or obligations of restitution
resulting from the termination of the contract. (383) In practice, the excuse is most
frequently invoked in cases of late performance and complete non-performance. (384) It
also applies to the delivery of non-conforming goods, but such cases are rare. (385)
Defects in goods manufactured by the seller are, as a rule, the seller's responsibility.
Where the seller bears the procurement risk, as in the case of a sale of generic goods
which are available on the market, that risk will usually extend to a strict obligation that
the seller will procure and deliver goods free of defects. Furthermore, the scope of the
P 77 force majeure exemption also extends to situations of economic impossibility,
impracticability, unaffordability or hardship. Yet, in those situations, the specific legal
consequences of the hardship concept will usually prevail, that is, the obligor will then
not simply be released from its performance obligation and damages, but the court or
arbitral tribunal will have the power to adapt the contract or terminate it on terms to be
fixed. (386)

II Recognition of the Force Majeure Excuse as a General Principle of Law

A Overview of Standards in Domestic Laws
1 Impossibility of Performance
a In Civil Law Systems
(1) Subsequent and initial impossibility. Under the traditional doctrine of impossibility
of performance, the obligor is released from its contractual duty to perform if the
impossibility occurred after formation of the contract and cannot be attributed to any

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 kind of fault of the obligor, i.e., wilful or negligent action or omission causing
impossibility. (387) Many civil law systems recognize this contract excuse in a more or less
distinct form. (388)
Those legal systems which adhere to the Roman law rule ‘impossibilium nulla obligatio’
distinguish between subsequent (supervening) and initial objective impossibility,
depending on whether impossibility already existed at the time of contract formation or
arose afterwards. (389) Accordingly, those legal systems consider antecedent
impossibility as a matter rendering the contract null and void and not as a situation of
non-performance. The following presentation will only deal with subsequent events
hindering performance; the treatment of initial or antecedent impediments in domestic
laws and under general contract principles will be discussed later. (390)
P 78
(2) Objective and subjective impossibility; non-imputable impossibility. The doctrine of
impossibility of performance was regulated in great detail in the former German Civil
Code (BGB; 1900). (391) Subjective impossibility can be defined as existing whenever the
obligor is unable to perform even though it desires to do so (‘I cannot do it’). (392) By
contrast, objective impossibility presupposes that neither the obligor nor anybody else is
able to perform (‘the thing cannot be done’). Not only objective impossibility, but also
subjective impossibility may release the non-performing obligor, provided, however, that
there is a non-imputable (‘nicht zu vertretende’), as opposed to imputable (‘zu
vertretende’), impossibility. The impossibility of performance is in particular imputable
to the obligor if it is at fault (in the sense of wilful or negligent action or omission). The
question as to which party must bear the consequences of impossibility is determined
more generally by statutory rules (i.e., the fault principle and exceptions such as the
rules on mora debitoris) (393) or by contractual provisions, which allocate the risk
associated with the particular impediment to performance. (394)
The concept of impossibility includes situations of physical (absolute) impossibility, e.g.,
where specific goods identified to a sales contract are destroyed as a result of an
intervention of third parties or natural disaster. It also covers cases of so-called ‘legal
impossibility’, e.g., where the subject matter is subjected to confiscation, expropriation,
embargos, export or import restrictions or where performance is otherwise rendered
impossible by an act of public authority.
(3) Economic impossibility (impracticability). The question as to whether impossibility
also includes ‘economic impossibility’ or ‘commercial impracticability’, i.e., cases of
(extreme) economic hardship rendering performance ‘excessively or unreasonably
onerous’, was controversially discussed under the pre-reform version of the BGB and is
P 79 also disputed under Swiss law. (395) However, those legal authorities which reject an
equation of situations of ‘economic impossibility’ with the concept of impossibility do
not necessarily hold that the obligor should be denied any exemption or similar defence.
They generally hold that situations of ‘economic unaffordability’ should exclusively be
discussed under the doctrine of lapse of the contract basis or change of circumstances
(‘Wegfall der Geschäftsgrundlage;’ ‘clausula rebus sic stantibus’). (396)
In Germany, the former Reichsgericht applied the concept of impossibility to the case of
impracticability or economic hardship especially when inflation rendered long-term
contracts ruinous for one party after World War I. (397) After 1923, an additional legal
doctrine called ‘lapse of the contract basis’ (‘Wegfall der Geschäftsgrundlage’) was
created and then regularly used by the German courts to decide cases of
impracticability. According to this doctrine, the courts can either terminate or adapt
contracts when the contractual balance has severely changed due to unforeseeable
circumstances, for which neither party was expressly or implicitly obliged to bear the risk
under the contract. (398) The doctrine has now been codified under the slightly modified
title ‘interference with the basis of the contract’ (‘Störung der Geschäftsgrundlage’) in §
313 BGB (2002). Its relationship with the doctrine of impossibility (also including certain
situations of impracticability) under § 275 BGB (2002) is discussed below. (399)
(4) Legal effects. Due to the mutual dependency of the main obligations in a bilateral
contract, in many legal systems the discharge of one party on account of ‘non-imputable’
impossibility also leads to the discharge of the other party from its obligation (mutual
discharge). (400) Special rules apply in the case of partial impossibility, where the
question arises as to whether the obligee may reasonably be expected to have an
interest in accepting only the remaining part of the performance, i.e., whether the mutual
discharge extends only to the impossible part (with a proportional reduction of the price)
or to the entire performance. (401) If the impossibility is permanent, both parties are
freed from their obligation; if it is temporary, the performance cannot be claimed as long
as the impossibility persists.
However, as regards the general rule of mutual discharge, an important exception may
P 79 apply according to the rules on the passing of risk. Where specific property is subject to
a contract of sale, the question arises from what point in time the buyer assumes the risk
of a casualty (accidental destruction) or a deterioration of the goods which are identified
in the contract. Some legal systems provide that the risk that the buyer must pay the
purchase price if the delivery of the goods becomes impossible passes not only at the
time of delivery, but already at the time of conclusion of the contract. In those legal

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 systems, the passing of risk is linked with the passing of title, which in turn is linked with
the conclusion of the contract. (402)
b The Concept of the Revised German BGB in Particular
(1) Introduction. On 1 January 2002, a comprehensive reform of German contract law
including the areas of time-bar by prescription, interest, law of non-performance (breach
of contract), sales law, law of work contracts and law of credit transactions entered into
force. (403) The reform is the most significant legislative intervention in German contract
law since its enactment in the Second Book of the BGB on 1 January 1900. In 1992, a Law
Reform Commission, established by the German Ministry of Justice in 1984, published its
proposals for a major reform of contract law. (404) These proposals were, to a significant
extent, based on the CISG and the (then) draft UPICC. (405) In 2000, the German Ministry of
Justice published a ‘discussion draft’ of a statute modernizing the law of obligations. This
draft was triggered by the need to implement three European Community (EC) Directives
on consumer protection which had an impact on German contract law. (406) In order to
restore the balance between consumer-friendly rules and general contract law, the
German legislaiture opted for a further reaching reform of German contract law rather
than just adopting the EC consumer protection directives. The discussion draft was based
P 81 on the reform proposals of 1992, supplemented and modified with the rules of the EC
Directives to be implemented. It gave rise to widespread criticism and was in the
following substantially amended.
Prior to the reform, the German rules concerning breach of contract were based on the
type of the breach of contract that the obligor had committed. The BGB (1900)
distinguished between three main types of breach of contract, i.e., impossibility, delay
and positive breach of contract, the latter remedy being available in case of a violation
of contractual duties which may neither be attributed to the category of impossibility of
performance nor to the category of delay. The new system is based on a general concept
of breach of duty (§ 280 BGB). (407) This is comparable to the general concept of non-
performance under the CISG, UPICC or PECL. (408) There is thus a breach of duty
regardless of whether the breach was caused by an impediment or a change of the
obligor's mind, or whether it consists in complete non-performance, malperformance or
delay. The cause and characterization of the breach only becomes relevant in regards to
the specific remedies such as specific performance, damages or termination, which
depend on additional prerequisites. (409)
One of the objectives laid down in the 1992 report of the Law Reform Commission was to
ensure that the concept of impossibility of performance would lose its central position in
the law of non-performance. (410) The discussion draft of 2000 endorsed this view. (411)
This position has been criticized, and the notion of impossibility has been reintroduced
in the new law of non-performance, albeit in a different manner. It has been emphasized
that under the new law, the significance of the concept of impossibility has rather
increased as an exemption from a claim for specific performance (§ 275 BGB), but has
decreased as regards claims for damages. (412) From a practical perspective, the
question of under what circumstances the non-performing obligor may be excused from
paying damages appears to be much more important than the question of under what
circumstances a claim for specific performance is excluded. (413) The latter issue will be
addressed first.
P 82
(2) The concept of impossibility and claims for specific performance. § 275 BGB reads as
follows:
(1) A claim for performance cannot be made in so far as it is impossible for the obligor
or for anyone else to perform.
(2) The obligor may refuse to perform in so far as performance requires expenditure
which, having regard to the subject matter of the obligation and the principle of
good faith, is manifestly disproportionate to the obligee's interest in performance.
When determining what may reasonably be required of the obligor, regard must
also be had to whether he is responsible for the impediment.
(3) Moreover, the obligor may refuse to perform if he is to effect the performance in
person and, after weighing up the obligee's interest in performance and the
impediment to performance, performance cannot be reasonably required of the
obligor.
(4) The obligee's rights are determined by §§ 280, 283 to 285, 311a and 326.
Paragraph 1 applies to all types of impossibility, i.e., objective impossibility (nobody can
perform), subjective impossibility (the specific obligor cannot perform, but somebody
else could), (414) initial impossibility (performance was already impossible when the
contract was concluded), (415) subsequent impossibility, partial and total impossibility.
(416) The provision drops the requirement that the impossibility must not be imputable
to the obligor (imputability in most cases being understood as fault), which had been
contained in § 275 (1900), but had, according to the prevailing view under the old law, to
be treated as not written as far as the right to demand performance was concerned. (417)
Paragraph 2 applies to situations of ‘practical impossibility’ (‘faktische Unmöglichkeit’).

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 Practical impossibility presupposes that performance could in theory still be carried out,
but would appear to be unreasonable since the expenditure required to perform would
be manifestly disproportionate to the obligee's interest in performance. The classic
example is the ring (worth 100) that has been dropped into a lake after the seller has sold
it to the buyer but before it has been transferred to the buyer. (418) The cost of draining
P 83 the lake and recovering the ring would amount to 100,000. Given that the obligee's
interest in the ring is only 100 (the value of the ring), it would evidently be
unreasonable to expect the obligor to incur such vast expenses. The terms of paragraph 2
make it clear that the question of whether the obligor's expenditure required to perform
and overcome the impediment is unreasonably burdensome must not be assessed in
absolute terms, but in relation to the obligee's interest in performance. Hence German
legal writers make a distinction between practical impossibility (‘praktische’ or ‘faktische
Unmöglichkeit’) and ‘economic impossibility’ (‘wirtschaftliche Unmöglichkeit’). The latter
is not covered by paragraph 2, but by § 313 BGB regarding change of circumstances
(‘Störung der Geschäftsgrundlage’; ‘interference with the basis of the contract’), which is
regarded as a conceptually different problem. (419) In cases of economic impossibility,
performance becomes extremely burdensome for the obligor, but does not appear to be
disproportionate to the interest of the obligee in receiving performance. To illustrate, if
the price of 1,000 kg of saffron that have been sold increases dramatically (e.g., instead of
200, 2,000) because the sources of supply have run short thus rendering performance
extremely expensive and onerous for the obligor, the obligee's interest in the delivery of
the saffron is also approximately 2,000 (the current market price) and not only the
contractual purchase price (plus the buyer's margin if it is a reseller). In this example,
there is no (gross) disproportion between the obligor's effort and the obligee's interest in
receiving performance. The latter has not, as in the ring example above, remained at the
earlier lower level, but has risen by the same extent as the obligor's effort since the
object of the sale has become more valuable. Thus while both situations of practical and
economic impossibility involve a substantial increase in the obligor's cost of
performance, in the latter instance, the obligor's efforts to overcome such increase are
not disproportionate to the obligee's interest in receiving performance. Whether the
obligor may be granted relief in this situation thus depends on whether the requirements
of § 313 BGB regarding changed circumstances are met. In addition, this provision will
always apply (at the exclusion of § 275 BGB) if due to a change of circumstances, the value
of the performance received by the obligor substantially decreases. (420)
As will be discussed infra, the above distinction may be used in order to determine the
respective scope of application of the force majeure and hardship exemptions under
general contract principles. (421)
According to § 275(2), second sentence BGB, ‘when determining what may reasonably be
required of the obligor, regard must also be had as to whether he is responsible for the
P 84 impediment’. In principle, § 275 BGB applies regardless of whether the breach of duty
is imputable to the obligor, and in particular, whether the obligor is at fault or not. It has
therefore been pointed out that § 275(2), second sentence BGB should only be relevant
for the obligor who is not responsible for the impediment. (422) The requirements with
respect to the efforts to be taken by the obligor in order to overcome the impediment
should not be overly stringent. On the other hand, it hardly makes sense to further raise
the threshold if the impediment is imputable to the obligor. In that case, the obligor's
liability for damages (§ 283 BGB) should sufficiently secure the obligee's legitimate
interests.
As regards the legal consequences, § 275(1) BGB provides that a claim for specific
performance is excluded by operation of law if the relevant requirements are met. By
contrast, paragraphs 2 and 3 only provide for a right to refuse performance, i.e., a defence
which needs to be raised by the obligor. Here, the law wants to leave it open to the
obligor to render performance even though performance has become practically or
personally impossible, as it would involve unreasonable efforts. (423) The different legal
consequences of paragraph 1 and paragraphs 2 and 3 may make it necessary to
distinguish between situations where performance is factually impossible (paragraph 1)
and where it is practically impossible. The line between the different types of situations
may be difficult to draw, particularly in cases of merely subjective impossibility. (424)
Paragraph 3 governs the situation of ‘personal’ impossibility. The paradigmatic example
is the soprano who refuses to sing after she has learnt that her son has contracted a life-
threatening disease. (425) The question of whether performance may still be expected
from the obligor is, in contrast to paragraph 2, not merely to be determined on the basis
of the interest of the obligee in the performance, but also and above all on the basis of
P 85 the interests of the obligor. (426) This is also the approach in situations of economic
impossibility, which, however, should exclusively fall under § 313 BGB regarding change of
circumstances. It has convincingly been argued that § 275(3) BGB ‘remains a specific
manifestation of the general rules concerning change of circumstances, and the inclusion
of this rule in § 275 III, in a way, undermines the subtle line the law has drawn in § 275 II
between impossibility and change of circumstances’. (427)
§ 275 BGB is comparable to Article 7.2.2 UPICC and Article 9:102 PECL. These rules adopt
the principle of specific performance, subject to a number of qualifications which are at
least in part equivalent to those contained in § 275 BGB. (428)

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 (3) The concept of impossibility and claims for damages. As regards damage claims, the
concept of impossibility is indeed less important than prior to the law reform. (429)
However, this finding cannot easily be inferred from an analysis of the wording of the new
rules and needs further explanation.
From a dogmatic point of view, the notion of impossibility does not constitute the central
cause of action for a claim for damages anymore. (430) § 280(1) BGB is now the basis for
damage claims based on a breach of duty (obligation). Additional prerequisites must be
met if the obligee claims damages caused by delay (§§ 280(2), 286 BGB) or if it asks for
the full performance interest (expectancy or positive interest) in lieu of specific
performance (§ 280(3) BGB). In the latter case, the general rule is set out in § 281 BGB,
providing that the obligee may, subject to the requirements of § 280(1) BGB (i.e., breach
of duty imputable to the obligor, see below), demand full compensation in lieu of
performance if the obligor does not perform within an additional reasonable period of
time fixed by the obligee (‘Nachfrist’) or if under the circumstances, it would be
unreasonable for the obligee to set an additional time for performance.
Yet there is still a rule addressing the situation of impossibility. According to § 283 BGB,
‘if, by virtue of § 275(1) to (3) [i.e., where the obligor is excused from rendering specific
performance due to impossibility], the obligor does not have to perform, the obligee
may, subject to the requirements of § 280(1), demand damages in lieu of performance’.
Accordingly, the obligee may claim its expectancy interest in all cases of (i) subsequent
impossibility pursuant to § 275(1) to (3) BGB, and (ii) unless the obligor proves that it was
not responsible for the impossibility to perform:
(i) § 311a(2) BGB includes a special rule for situations in which there is an initial
impediment to performance (i.e., cases of initial impossibility). §§ 280(1), 283 BGB
P 86 only cover cases of subsequent impossibility of performance, where the breach of
obligation results from conduct which has occurred after conclusion of the contract.
(431)
(ii) § 283(1) BGB, by referring back to § 280(1) BGB, requires that the breach of duty is
imputable to the obligor. ‘Imputability’ of events, in German law language encoded
in the term ‘Vertretenmüssen’, is presumed. This reversal of the burden of proof
follows from the negative formulation of § 280(1) sent. 2 BGB (‘This does not apply, if
the breach of obligation is not imputable to the obligor’). ‘Imputability’ is defined in
§ 276 BGB. (432) Whereas § 276(1) sent. 1 BGB (former version) merely stated that the
obligor is responsible for fault either in the form of intention or negligence, unless
something else is specifically provided, the new rule explicitly provides that a
stricter type of liability may be inferred from the content of an obligation,
particularly from the assumption of a guarantee or from the assumption of the risk
to be able to procure the object in question (especially the procurement risk if the
obligor must deliver generic goods). Although the reform of § 276 BGB was primarily
intended to clarify the law, (433) it has brought the theoretical concept of civil law a
step closer to the concept applicable under general contract principles. It is also
acknowledged that the way in which the new rule is drafted leaves much leeway for
a flexible adjustment of the standard of liability. (434) This flexibility permits, in
particular, construing § 276(1) BGB in a way that is compatible with the standards
and criteria of the force majeure excuse under general contract principles.
Considering the above and the limitations of the practical significance of the fault
principle, (435) it appears that, in effect, the standard of § 276(1) BGB is equivalent
to the standard under the general ‘force majeure’ excuse: the obligor must not have
assumed the relevant risk, and it must establish that the non-performance was due
to an impediment beyond its control, that it could not reasonably foresee the
impediment at the time of contracting, and that it could not reasonably avoid or
overcome it or its consequences. In the same way, Schlechtriem stated: (436) ‘The
P 87 present author is convinced that, despite different starting points, liability under
the cited uniform rules [Article 79(1), (2) CISG; Article 7.1.7, 7.4.1 UPICC; Article 8:108,
9:501(1) PECL] and Vertretenmüssen [imputability] under § 276 BGB will be based on
similar standards and criteria.’
c Evaluation: The Decline of the Concept of Impossibility in Connection with Damages
Claims
The revision of the BGB in 2002 shows that the significance of the concept of impossibility
of performance in connection with claims for damages has been narrowed. It should be
recalled that the concept of impossibility of performance as particularly laid down in §§
275, 280, and 323 of the former BGB (1900) was based on Friedrich Mommsen's
impossibility doctrine published in 1853. (437) As noted by Zimmermann, ‘Mommsen's
book is characterized by that abstract and excessive conceptualism which is so typical of
pandectist writing. It forced the sources into a scheme which was alien to the Roman
lawyers and which, today, fails to appeal to legal historians and modern lawyers alike’.
(438) Indeed, an important drawback of the concept of impossibility of performance as a
very broad conceptual abstraction is that the legal consequences in a given situation
primarily depend on the quite complicated characterization and assignment of that
given situation to a particular category of impossibility. Mommsen and the BGB (1900)
distinguished, inter alia, between initial and supervening, absolute and relative,
objective and subjective, natural and legal, permanent and temporary, complete and

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 partial, apparent and ‘real’ impossibility. (439) It must be conceded, however, that some
of these categories are unavoidable and demanded by factual circumstances. This is true
for the distinction between natural and legal, permanent and temporary, complete and
partial impossibility, terms that also appear in the context of the force majeure excuse
under general contract principles. (440) The same could be said with regard to the
distinction between initial and supervening impossibility (or impediments), for the time
of the conclusion of the contract may be seen as a natural demarcation line, even though
it will be seen that neither conceptual nor policy arguments warrant such distinction
under general contract principles. (441)
By contrast, the distinctions between absolute and relative or objective and subjective
impossibility turned out to be problematic and inappropriate for determining whether
the obligor should be released or not. The contours of these distinctions are not easy to
draw and raise a number of difficult questions. As seen above, it is acknowledged that not
only absolute (or objective) impossibility (e.g., the destruction of specific goods
identified in the contract), but also relative (or subjective) impossibility, where
performance could be rendered by a person other than the obligor, may discharge the
P 88 obligor if he is not responsible for the impossibility. For example, where a tenant of
premises such as a dental practice was prevented from carrying on that practice by
legislation requiring practitioners to hold a diploma which she did not hold and which, in
view of her somewhat advanced age, she could not reasonably have been expected to
obtain, the Swiss Federal Tribunal held that she was discharged from her obligations
under the lease. (442) The example illustrates that the distinction between objective and
subjective impossibility is an unnecessary one, the decisive criterion being whether the
obligor has assumed a particular risk or whether it is at fault. (443) This conclusion has
specifically been reached in English law, where the distinction is not used. (444)
Indeed, the requirement to allocate a particular impediment to performance to one of
the aforesaid categories of impossibility does not yet determine the real question at
issue, i.e., which party should bear the risk and consequences of the impediment to
performance. It has been seen above that the fault principle is subject to numerous
exceptions. In terms of practical results, the obligor will usually only be released due to
absence of fault if an event beyond its control (i.e., a ‘force majeure’ event) caused the
non-performance, and if it has not assumed the risk of this occurrence. (445) Thus for the
purposes of determining whether the non-performing party may be discharged or
excused from damages, the mellower language of the phrase ‘impediment beyond the
obligor's control’ and ‘could not be reasonably have been avoided or overcome’ as used
by Article 79 CISG seems to be preferable to the concept of impossibility coupled with the
fault principle. (446)
In conclusion, the concept of impossibility as it is understood today is in effect quite
equivalent to the force majeure excuse under general contract principles. Furthermore,
as regards the application of the two concepts in practice, the system of general contract
principles of strict contractual liability limited by the force majeure excuse is arguably
more straightforward and better understood since the distinctive criteria which are
eventually decisive for the resolution of a particular case are set out in a clearer way.
This appears to be true even though under the general force majeure excuse it is also
necessary to analyze the different groups of cases in order to properly assess a particular
case.
2 Frustration of Contract (English Law)
a Introduction
Contrary to the tradition of the ius commune and civil law, in English common law the
P 89 obligor's liability does not depend on fault. As seen above, the common law regards all
contractual promises as guarantees. If the obligor does not want to be bound, it must
specifically exclude its liability in the contract. Yet this principle is not an absolute one.
Even without an express exemption clause, the obligor's liability is not unlimited. The
doctrine of frustration was established in 1863 in Taylor v. Caldwell (447) to mitigate the
rigour of the common law's insistence on literal performance of absolute promises. The
case covered a situation where the physical subject matter of the contract had perished.
(448) The doctrine was then extended to cases where, without any such physical
destruction, the commercial adventure envisaged by the parties was frustrated
(‘frustration of the common venture’). (449) Frustration has been defined as follows: (450)
A contract may be discharged on the ground of frustration when something
occurs after the formation of the contract which renders it physically or
commercially impossible to fulfil the contract or transforms the obligation to
perform into a radically different obligation from that undertaken at the
moment of entry into the contract.
It is generally emphasized that the scope of the doctrine is narrow: frustration is ‘not
lightly to be invoked to relieve contracting parties of the normal consequences of
imprudent commercial bargains’. (451)
b Legal Basis of Doctrine

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 In Taylor v. Caldwell, the court employed the concept of an implied condition as the basis
of the doctrine of frustration. This test has been criticized and laid to rest by the House of
Lords: (452) there would rarely be a genuine common intention to terminate the contract
upon the occurrence of the particular event in question, and the parties, even if they had
foreseen the event, would probably have ‘sought to introduce reservations, or
qualifications or compensations’. (453)
P 90
The test adopted by the House of Lords in Davis Contractors Ltd v. Fareham U.D.C. (454)
and in later cases requires a radical change in the obligation and may be formulated as
follows: (455) ‘If the literal words of the contractual promise were to be enforced in the
changed circumstances, would performance involve a fundamental or radical change
from the obligation originally undertaken?’ Whether a radical change in the ‘obligation’
exists is to be determined in different steps: (456) first, by means of the construction of
the terms of the contract in the light of the nature of the contract and the relevant
surrounding circumstances when the contract was made, the court should reach an
impression of the scope of the original obligation. By doing so, the court should ascertain
what the parties would be required to do in order to fulfil their literal promises in the
original circumstances. The court should then examine the situation after the occurrence
of the event alleged to have frustrated the contract, and ascertain what the new
obligation would be if the contract were still binding in the new circumstances. Third, the
court must compare the two obligations in order to decide whether the new obligation is
a ‘radical’ or ‘fundamental’ change from the original obligation.
This test has been accepted by Australian, Canadian and New Zealand courts. (457)
However, it has also been said that no practical consequences flow from the debate as to
the correct conceptual basis of the doctrine of frustration. (458)
c Legal Effects of Frustration
The Law Reform (Frustrated Contracts) Act 1943 provides for most of the legal
consequences of frustration. However, it is still necessary to examine the relevant
common law, since some contracts fall outside the scope of the Act, (459) and the
interpretation of the Act itself demands a knowledge of common law. (460) In common
law, frustration automatically brings the contract to an end forthwith (ex nunc), from the
time of the frustrating event, i.e., not ab initio (ex tunc). (461) Having set aside the
contract, the courts let the loss lie where it falls. While the parties are released from
P 91 duties of future performance, rights accrued before the frustration remain enforceable.
(462) However, the application of this principle could lead to injustice, i.e., unjust
enrichment. For example, parties were sometimes unable to recover the pre-payment
which they had made before the frustrating event. Similarly, where one party's
performance under the contract became due before the frustrating event, while that of
the other was only to be rendered thereafter, the former party would still have to
perform, without getting what it had bargained for in return.
Since the above problems were not dealt with very well in common law, the Law Reform
(Frustrated Contracts) Act 1943 was passed, seeking to prevent unjust enrichment. The
most important provisions of this Act are Section 1(2) regarding recovery of advance
payments (463) and Section 1(3) of the Act regarding recovery of valuable benefits other
than a payment of money. (464) , (465)
d Basic Features of the Doctrine of Frustration and Different Groups of Cases
The basic features of the doctrine of frustration may be summarized as follows: (466)
The frustrating event:
– must be an outside event or extraneous change of situation;
– must involve a radical change in circumstances, resulting in a radical change in the
‘obligation’ or in the actual effect of the promises of the parties construed in the
light of the new circumstances;
P 92
– should not be due to the act or election of the party seeking to rely on it; and
– must take place without blame or fault on the side of the party seeking to rely on it;
in other words, the lack of fault is necessary but not sufficient to bring about a
situation of frustration of contract.
The effects of frustration are to bring a contract to an end ‘forthwith, without more and
automatically’ and therefore to discharge the parties from further liability under it.
The scope of the doctrine may only be properly understood by a study of the case law.
The cases may be classified by reference to the different types of frustrating events. (467)
(1) Impossibility, including the following groups of cases: destruction of a particular
thing, (468) death or incapacity in case of ‘personal’ contracts, such as employment
or agency contracts, (469) unavailability of the subject matter of the performance
(e.g., charter parties have been frustrated where the ship was seized, detained or
requisitioned, and where cargo was unavailable because of a strike at the port of
loading or where the sold goods were requisitioned (470) ); unavailability or failure

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 of a particular source (e.g., where, according to the contract, goods were to be
imported from a particular country and such import is prevented by war, natural
disasters or prohibition of export (471) ); impossibility of the method of
performance (e.g., in Nicholl & Knight v. Ashton Edridge & Co., (472) where a contract
was made for the sale of cottonseed ‘to be shipped per steamship Orlando from
Alexandria during (…) January’ and the Orlando later went aground in the Baltic so
that she could not get to Alexandria in January, it was held that the contract was
frustrated, since it was to be construed as providing for performance exclusively in
the stipulated manner).
(2) Subsequent legal changes and supervening illegality (legal impossibility). (473)
(3) Frustration of purpose, if supervening events have reduced the value of goods,
services or facilities so greatly that the recipient is no longer bound to accept it and
pay the agreed price, provided that the commercial purpose of the contract was
shared by both parties. (474)
P 93

e Impracticability Not Covered by the Doctrine of Frustration

The doctrine of frustration is in principle not extended to situations of impracticability,
(475) where due to unforeseen circumstances, performance could only be rendered with
‘extreme and unreasonable difficulty, expense, injury or loss’. (476) For example, English
law regularly declines to excuse a party as a result of a sharp rise or fall of economic
circumstances by inflation or currency fluctuations. (477) By contrast, American law
accepts the principle of ‘commercial impracticability’, according to which a party may
be exempted if, as a result of unexpected supervening events, performance of the
contract, though remaining physically possible, has become severely more burdensome
for that party. Thus, a conceptual difference exists between English law and American
law, as well as those civil law systems which accept the theory of ‘economic impossibility’
or ‘unreasonableness’ either as part of the doctrine of impossibility of performance or as
part of the doctrines of rebus sic stantibus, Störung der Geschäftsgrundlage or the like.
(478)
Hence the English doctrine of frustration does not, as a general principle, cover situations
where an unforeseeable event results in a substantial increase in the obligor's cost of
performance or a substantial decrease in the value of the performance received by the
other party. As will be shown later, this position is, in terms of coherence of comparable
situations, hardly convincing. (479) This is particularly so because under the doctrine of
frustration of purpose, a party may be discharged if supervening events frustrate the
common purpose of the contract and thus reduce the value of the other party's
performance so greatly that it should no longer be bound to accept it and pay the price.
It is acknowledged that frustration of purpose is, ‘in a sense, the converse of
impracticability’, and that it resembles impracticability in that neither is concerned with
cases in which performance has become impossible. (480)
f Evaluation
By and large, the results of case law on the above categories appear not to be
significantly different from the results reached under the doctrine of impossibility of
performance or the force majeure excuse under Article 79 CISG. (481) Many aspects and
P 94 arguments discussed in relation with the doctrine of frustration under English law are
similarly relevant under the general force majeure excuse. (482) However, the following
qualification should be made with regard to the legal effects.
The legal effects under Article 79 CISG differ from the total and automatic discharge
which results from frustration in English law. Under the force majeure excuse, the contract
is in principle not automatically discharged (terminated ex nunc), but only upon the
other party's election to declare its termination (avoidance or rescission) on the grounds
of a fundamental breach of contract. (483)
Another difference between the effect of the force majeure excuse and frustration is that
the excuse may be partial or temporary, as it only applies for the period and to the extent
that the impediment exists; (484) whereas the effect of frustration is necessarily ‘to kill
the contract and discharge the parties from further liability under it’. (485) However,
under English law it is also accepted that the occurrence of some new circumstance may
excuse – temporarily or partially – the performance of a particular contractual obligation
without frustrating the whole contract. (486) The obligee may not claim damages in
respect of the portion which is impossible though it may enforce the remainder. (487) If
the failure to perform deprives it of the substance of what it was contracting for, it may
terminate the contract. (488) Thus, the outcome appears to be similar to the legal effects
under the force majeure excuse. (489)
On the grounds that the effects of the force majeure excuse are less drastic than those of
frustration, Treitel has suggested that the requirements of the force majeure excuse
‘should be less exacting and should be satisfied by at least some kinds of
impracticability which are not recognized as grounds of total discharge under English
domestic law’. (490)

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 3 Standards Adopted in the United States
a Impracticability
Section 261 Restatement (2d) of Contracts (1981) regarding ‘Discharge by Supervening
Impracticability’ states:
Where, after a contract is made, a party's performance is made impracticable
P 95 without his fault by the occurrence of an event the non-occurrence of which
was a basic assumption on which the contract was made, his duty to render
that performance is discharged, unless the language or the circumstances
indicate the contrary.
The above section states the general principle under which a party's obligation may be
discharged due to impracticability. It is applicable to all types of impracticability and
‘deliberately refrains from any effort at an exhaustive expression of contingencies’. (491)
The principle has been drawn from § 2-615(a) Uniform Commercial Code (UCC; ‘Excuse by
Failure of Presupposed Conditions’), where the doctrine of impracticability is laid down
in similarly broad terms for the sale of goods. (492) Sections 262-264 Restatement (2d) of
Contracts deal with three categories of cases where this general principle has
traditionally been applied: supervening death or incapacity of a person necessary for
performance (§ 262), supervening destruction of a specific thing necessary for
performance (§ 263) and supervening prohibition or prevention by law (§ 264). The UCC
includes some special rules on casualty (e.g., fire, theft) to identified goods before the
risk of loss has passed to the buyer (§ 2-613) and rules on substituted performance where
the manner of delivery required by the contract becomes commercially impracticable or
the method of payment fails because of government regulation (§ 2-614). Furthermore,
the Restatement (2d) of Contracts contains additional rules (e.g., on initial
impracticability or frustration (§ 266) or temporary and partial impracticability or
frustration (§§ 269-270). (493)
The doctrine of impracticability is based on the central inquiry as to whether the non-
occurrence of the circumstance (i.e., the impediment to performance) was a ‘basic
P 96 assumption on which the contract was made’. (494) The decisive question is to
determine which party assumed the relevant risk: ‘Determining whether the non-
occurrence of a particular event was or was not a basic assumption involves a judgment
as to which party assumed the risk of its occurrence.’ (495) Farnsworth has stated: (496)
The new synthesis [of the common law development, as laid down in § 2-615
UCC] candidly recognizes that the judicial function is to determine whether, in
the light of exceptional circumstances, justice requires a departure from the
general rule that a promisor bears the risk of increased difficulty of
performance. However, the Code formulation does not include the word risk
[neither § 2-615(a) UCC nor § 261 Restatement (2d) of Contracts), and Judge
Henry Friendly faulted its language as a ‘somewhat complicated way of
putting [the] question of how much risk the promisor assumed’. (497) (Emphasis
added)
The term ‘impracticability’ has deliberately been preferred to the term ‘impossibility’ on
the grounds that the latter may be understood to be limited to situations of absolute
impossibility or may not be appropriate as an all-embracing term to describe the
required extent of the impediment to performance: (498)
Although the rule stated in this Section is sometimes phrased in terms of
‘impossibility’, it has long been recognized that it may operate to discharge a
party's duty even though the event has not made performance absolutely
impossible. This Section, therefore, uses ‘impracticable’, the term employed
by Uniform Commercial Code § 2-615(a), to describe the required extent of the
impediment to performance. Performance may be impracticable because
extreme and unreasonable difficulty, expense, injury, or loss to one of the
parties will be involved. A severe shortage of raw materials or of supplies due
to war, embargo, local crop failure, unforeseen shutdown of major sources of
supply, or the like, which either causes a marked increase in cost or prevents
performance altogether may bring the case within the rule stated in this
Section. Performance may also be impracticable because it will involve a risk
of injury to person or to property, of one of the parties or of others, that is
disproportionate to the ends to be attained by performance. However,
‘impracticability’ means more than ‘impracticality’. A mere change in the
degree of difficulty or expense due to such causes as increased wages, prices
of raw materials, or costs of construction, unless well beyond the normal
range, does not amount to impracticability since it is this sort of risk that a
fixed-price contract is intended to cover. Furthermore, a party is expected to
use reasonable efforts to surmount obstacles to performance (see § 205),
P 97 and a performance is impracticable only if it is so in spite of such efforts.
A general distinction is therefore made between situations where the performance of a
contract becomes merely more onerous for the obligor, and where it becomes excessively

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 more onerous. This is also illustrated in Official Comment No. 4 on § 2-615 UCC:
Increased cost alone does not excuse performance unless the rise in cost is
due to some unforeseen contingency which alters the essential nature of the
performance. Neither is a rise or a collapse in the market in itself a
justification, for that is exactly the type of business risk which business
contracts made at fixed prices are intended to cover. But a severe shortage of
raw materials or of supplies due to a contingency such as war, embargo, local
crop failure, unforeseen shutdown of major sources of supply or the like, which
either causes a marked increase in cost or altogether prevents the seller from
securing supplies necessary to his performance, is within the contemplation of
this section. (See Ford & Sons, Ltd., v. Henry Leetham & Sons, Ltd., 21 Com. Cas.
55 (1915, K.B.D.).)
Despite the relatively moderate wording used in Comment No. 4 (‘marked increase in
cost’), the required extent to which the performance must become more (excessively)
onerous is very stringent. (499) Furthermore, under the doctrine of impracticability,
situations of ‘economic unaffordability’ (impracticability) normally arise where the costs
of performance have substantially increased. § 2-615 UCC in terms only excuses sellers,
but courts have held that the excuse of impracticability may in principle be extended to
buyers in cases of the falling value of the seller's performance to the buyer, even though it
seems that a buyer has hardly ever been excused by a court on this ground. (500)
b Frustration of Purpose
Section 265 Restatement (2d) of Contract sets out the doctrine of frustration of purpose:
Where, after a contract is made, a party's principal purpose is substantially
frustrated without his fault by the occurrence of an event the non-occurrence
of which was a basic assumption on which the contract was made, his
remaining duties to render performance are discharged, unless the language
or the circumstances indicate the contrary.
P 98
This exemption deals with the situation where a change in circumstances makes a party's
performance virtually worthless to the other party, frustrating the latter's purpose in
making the contract (e.g., the goods purchased turn out to be worthless to the buyer
because it cannot export them as intended). If its requirements are met, the doctrine of
frustration of purpose discharges obligations without liability for breach. The situation is
distinct from the problem of impracticability because there is no impediment to
performance for either party. While the doctrine of frustration of purpose (sometimes
also simply referred to as ‘doctrine of frustration’) is not explicitly recognized in the UCC,
it has been generally accepted by American courts. (501)
The Restatement Second's synthesis of the doctrine of frustration of purpose differs only
with regard to one requirement from the impracticability doctrine: whereas the
impracticability test requires a supervening event (‘contingency’) which must have made
performance as agreed impracticable, under the frustration of purpose test, it is required
that the event must have ‘substantially frustrated’ the relevant party's ‘principal purpose’.
(502) However, it has also been noted that ‘despite the similarity of the requirements for
the two doctrines, courts have been much more reluctant to hold that a party has been
excused on the ground of frustration than on the ground of impracticability’. (503) This
may be explained by the fact that as a matter of principle, the recipient of an object or
service bears the risk of being able to use the object or services as intended. (504)
Furthermore, courts have viewed the affected party's principal purpose in broad terms.
The mere fact that some exceptional event has prevented a party from taking advantage
of the transaction in the particular way expected may not suffice to satisfy the
requirement that the frustration be nearly total if the party can turn the bargain to its
advantage in some other way. (505)
c Evaluation
In view of the above definition of § 261 Restatement (2d) of Contracts, the following four
requirements of the impracticability test have been identified: (506)
(1) the event must have made performance as agreed impracticable;
(2) the non-occurrence of the even must have been ‘a basic assumption on which the
contract was made’;
(3) the impracticability must have resulted without the fault of the party seeking to be
excused;
(4) the party seeking to be excused must not have assumed a greater obligation than
the law imposes.
P 99
An analysis of these requirements as they have been specified in case law shows that in
effect, no major differences exist with the force majeure excuse under general contract
principles. (507)

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 The first requirement that performance must have become impracticable corresponds to
the requirement of an impediment to performance, which also includes situations of
economic ‘unaffordability’ or hardship. (508) The force majeure prerequisite that the
party seeking to be excused could not reasonably be expected to have avoided or
overcome the impediment or its consequences appears to be covered by this first
requirement of the impracticability test or by the second one. (509)
The second requirement that the non-occurrence of the event must have been ‘a basic
assumption on which the contract was made’ can basically be compared to the force
majeure requirement that the parties did not explicitly or implicitly allocate the
relevant risk to the obligor and that the impediment must have been beyond the
obligor's typical sphere of control. As stated in the Introductory Note on Chapter 11 of the
Restatement (2d) of Contracts: ‘Determining whether the non-occurrence of a particular
event was or was not a basic assumption involves a judgment as to which party assumed
the risk of its occurrence.’ As already noted above, the language of the relevant rules of
the UCC and the Restatement Second which do not include the word ‘risk’ has been
described by Judge Henry Friendly as a ‘somewhat complicated way of putting [the]
question of how much risk the promisor assumed’. (510) Under the force majeure excuse,
it must first be examined whether either party has explicitly or implicitly assumed the
risk of the occurrence of the relevant impediment. If no particular risk assumption can be
established, the issue of whether the impediment is beyond the typical sphere of control
of the obligor must be examined. Similarly, under American law, it is noted that the
assumption may be tacit, and the typical examples of basic assumption which are
mentioned include categories of cases where the impediment is typically beyond the
sphere of control of the obligor (‘parties ordinarily assume that the government will not
directly intervene and prevent performance’ [acts of public authority], parties ‘ordinarily
assume that a person who is necessary for performance will neither die nor be deprived
of the necessary capacity before the time for performance’, ‘they ordinarily assume that
a thing that is necessary for performance will remain in existence and in such condition
that performance can take place’ [impossibility; see also the categories referred to under
English law). (511)
The third requirement, the absence of fault of the party seeking to be excused, does not
P 100 constitute a material discrepancy with regard to the force majeure test. If the
aggrieved party is at fault, the impediment cannot be deemed to be beyond its sphere of
control, thus similarly preventing excuse. Furthermore, the requirement of absence of
fault has been characterized as rather obvious in the light of the principle that excuse is
traditionally unavailable where the impediment to performance arises from the act of
the party seeking to be discharged. (512) ‘Fault’ is intended to include negligence and not
merely a wilful wrong. If the event hindering performance is due to the fault of the
obligor, it will not be discharged from its obligations. Conversely, absence of fault does
not necessarily mean that the test of impracticability is met, as the obligor may have
assumed the risk of the occurrence of the impediment. Events that come within § 261
Restatement Second are generally said to be due either to ‘acts of God’ or to acts of third
parties. (513) This matches the concept of the force majeure excuse and also corresponds
to the finding that was especially made under Swiss law, which is based on the fault
principle and not on that of strict liability. (514)
Finally, the forth requirement that the party seeking to be excused must not have
assumed a greater obligation than the law imposes is also covered by the force majeure
requirement that the obligor did not assume the relevant risk (e.g., the refusal of a public
permit necessary for the performance of the contract). Compared to the second
requirement (‘basic assumption’), the focus seems to be here less on the issue of ‘typical
sphere of control’, but on the issue of an explicit or implicit contractual risk allocation in
view of the particular circumstances of the case. (515) The force majeure requirement that
the party seeking to be excused could not reasonably be expected to have taken the
impediment into account at the time of the conclusion of the contract (unforeseeability)
is also covered by the ‘no greater obligation’ requirement. (516)
Regarding the doctrine of frustration of purpose, Farnsworth has noted that ‘[i]t appears
to be recognized by the exemption provision of the Vienna Convention, which applies to
either party’. (517) An interpretation of Article 79 CISG confirms this view. (518) As the
category of frustration of purpose falls under the hardship exemption (fundamental
alteration of the equilibrium of the contract), the latter determines its legal
consequences.
In conclusion, given the significant convergence of the requirements of the exemptions
under American law and the force majeure (and hardship exemption) under general
contract principles, the consideration of American case law may be very useful.
P 103

B Article 79 CISG and Its Reception by Domestic Laws, the UPICC, the PECL and
Contract Practices
1 Article 79 CISG and Article 74 ULIS as Its Predecessor
It has been seen that the CISG can truly be regarded as part of the common core of the

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 legal systems, and that it is the cornerstone of the general principles of law method. (519)
This is particularly true for the force majeure excuse. The CISG was the main model for the
concept of strict contractual liability for non-performance under the UPICC/PECL, and the
limitation of that concept, the force majeure excuse of Article 79 CISG, was almost
literally adopted by these soft law codifications. (520)
In this section, the legislative history of Article 79 CISG will be examined. (521) It is
interesting because it gives some insights that are useful for its interpretation. In 1964,
the Hague Conventions on the sale of goods, consisting of the Uniform Law for the
International Sale of Goods (ULIS) and the Uniform Law on the Formation of Contracts for
the International Sale of Goods (ULF) were finalized. Even though the Hague Conventions
were only ratified by nine states, most of which were western European countries, (522)
they constituted the first attempt to unify the substantive law of international sales and
some practical experience was gained (mainly in the practice of German, Benelux and
Italian courts). (523) The provisions of ULIS and ULF formed the basis for the discussion
leading to the CISG. Article 79 CISG is a revised version of the exemption clause in Article
74 ULIS. A comparison of the two provisions reads as follows: (524)
Article 79 CISG (1980) Article 74 ULIS (1964)
General force majeure (1) A party is not liable for a (1) Where one of the parties
formula failure to perform any of his has not performed one of
obligations if he proves that his obligations, he shall not
the failure was due to an be liable for such non-
impediment beyond his performance if he can prove
control and that he could that it was due to
not reasonably be expected circumstances which,
to have taken the according to the intention of
impediment into account at the parties at the time of
the time of the conclusion of the conclusion of the
the contract or to have contract, he was not bound
avoided or overcome it or to take into account or to
its consequences. avoid or to overcome; in the
absence of any expression
of the intention of the
parties, regard shall be had
to what reasonable persons
in the same situation would
have intended.
Responsibility for third (2) If the party's failure is
persons due to the failure by a third
person whom he has
engaged to perform the
whole or a part of the
contract, that party is
exempt from liability only
if: (a) he is exempt under
the preceding paragraph;
and (b) the person whom he
has so engaged would be so
exempt if the provisions of
that paragraph were
applied to him.
Temporary impediments (3) The exemption provided 2. Where the circumstances
by this article has effect for which gave rise to the non-
the period during which the performance of the
impediment exists. obligation constituted only
a temporary impediment to
performance, the party in
default shall nevertheless
be permanently relieved of
his obligation if, by reason
of the delay, performance
would be so radically
changed as to amount to the
performance of an
obligation quite different
from that contemplated by
the contract. (525)

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 Article 79 CISG (1980) Article 74 ULIS (1964)
Notice requirement (4) The party who fails to
perform must give notice to
the other party of the
impediment and its effect
on his ability to perform. If
the notice is not received by
the other party within a
reasonable time after the
party who fails to perform
knew or ought to have
known of the impediment,
he is liable for damages
resulting from such non-
receipt.
Legal consequences (5) Nothing in this article 3. The relief provided by
prevents either party from this Article for one of the
exercising any right other parties shall not exclude
than to claim damages the avoidance of the
under this Convention. contract under some other
provision of the present Law
or deprive the other party of
any right which he has under
the present Law to reduce
the price, unless the
circumstances which
entitled the first party to
relief were caused by the
act of the other party or of
some person for whose
conduct he was responsible.
(526)
The text of Article 74 ULIS differs considerably from that of Article 79 CISG. (527) The focus
of the ULIS is on contract interpretation, by referring to what reasonable persons in the
same situation would have intended, and on constructive interpretation or gap-filling. On
the other hand, by stating that the obligor may be excused if non-performance is caused
by an impediment ‘beyond [the obligor's] control’, the CISG goes one step further as it
determines when an obligor cannot reasonably and typically be expected to take an
impediment into account and thus assumes the risk of its occurrence (‘typical sphere of
P 104 control’, infra § 8 III.): ‘The obligor is always responsible for impediments when he
could have prevented them but, despite his control over preparation, organization, and
execution, failed to do so. In this sense, the obligor “guarantees” his ability to perform. If
he wishes to restrict his liability, he must specify the particular impediments for which he
will not be liable.’ (528) Incidentally, the notion of ‘beyond [the non-performing party's]
control’ adopted in Article 79 CISG may have been taken from or at least inspired by the
language of standard force majeure clauses existing at the time, such as Article 10 of the
ECE-General Conditions for the Supply of Plant and Machinery for Export of 1953. (529)
Even though Article 79 CISG takes a more objective view of the allocation of risk and
control, this does not mean that contract interpretation would be irrelevant under Article
79 CISG. In order to determine whether the obligor has explicitly or implicitly assumed
the risk of the occurrence of the impediment, the parties' intentions are to be construed
by means of objective interpretation (Article 8[2] CISG): ‘The standard, as in Article 74(1)
of ULIS, is based on the expectations and intentions of reasonable parties. For example,
whether a party supplying goods has assumed the risk of fluctuating markets or risk of war
must, in the end, be decided with reference to the actual case and the particular
contract.’ (530)
It thus appears that in effect, the standards of the two exemptions are quite comparable.
It has also been noted that ‘too much weight should not be placed on the different
wording’, as ‘[t]he objective and purpose of Article 74 of the ULIS and Article 79 of the
CISG are identical’. (531) It may also be noted that the requirements that the impediment
could not reasonably have been taken into account, avoided or overcome are present in
both provisions.
At the 1980 Diplomatic Conference in Vienna, Article 79 CISG raised three specific problems
on which differing opinions were expressed which will be addressed later: (i) the meaning
of the change from ‘uncontemplated circumstances’ to ‘impediments beyond control’; (ii)
P 105 the exemption from liability for third persons not expressly dealt with in Article 74
ULIS – now Article 79(2) CISG, and (iii) the restriction of exemption to damages claims in
Article 79(5) CISG. (532)
2 Reception of the Standard of Article 79 CISG by Domestic Laws: The Example of China
The CISG has had a strong influence on many modern contract law codifications,

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 especially in Scandinavia, Central and Eastern Europe and Africa. (533) It has also
significantly inspired the reform codifications in the Netherlands (NBW) and in Germany
which are addressed elsewhere. (534) A detailed analysis of the reception of the standard
of Article 79 CISG by domestic laws would be well beyond the scope of this treatise. The
influence of the force majeure excuse of the CISG shall be illustrated below by the
example of China which plays a major role in international trade.
The contract law of the People's Republic of China seems to have adopted quite a similar
concept of excuse from non-performance to that of Article 79 CISG. China ratified the CISG
in 1986. The Contract Law of the People's Republic of China adopted in 1999 (535) excuses
non-performance which is due to force majeure. Articles 117 and 118 of the Contract Law
state: (536)
Article 117 In case that a contract is not able to be performed because of force
majeure, the liabilities shall be exempted in part or wholly in light of the
effects of force majeure, except as otherwise stipulated by law. If the force
majeure occurs after one party has delayed in performance, the liability may
not be exempted. (537)
Force majeure as referred to in this Law means the objective circumstances
that are unforeseeable, unavoidable and insurmountable.
Article 118 One party to a contact that is not able to perform the contract
because of force majeure shall make a notice to the other party promptly so
as to reduce the probable losses to the other party and provide evidence
within a reasonable time limit.
Already before the passing of the 1999 Contract Law, force majeure provisions had been
P 106 incorporated into all of the PRC's statutes governing contract law. (538) The Chinese
Contract Law replaced the Foreign Economic Contract Law of the People's Republic of
China of 1985 (FECL) which was applicable to contracts between Chinese and foreign
parties. The FECL contained a provision on force majeure which included an additional
requirement to present evidence issued by the relevant agency regarding the force
majeure event. (539) This requirement by the relevant agency was certainly a local and
atypical standard which would be incompatible with the CISG. (540) Article 118 of the 1999
Contract Law also requires the submission of evidence which, although not explicitly
stated, may still have to be issued by a state agency. (541)
3 Reception of the Standard of Article 79 CISG by the UPICC/PECL
As acknowledged by the Chairman of the Working Group of the 1994 UNIDROIT Principles,
the wording of Article 7.1.7 UPICC (Force majeure) (542) is a slightly amended version of
Article 79 CISG. (543) Article 7.1.7 UPICC thus extends the requirements and effects of the
excuse already recognized for the international sale of goods to all international
commercial contracts. Apart from insignificant differences in the wording, Article 79 CISG
and Article 7.1.7 UPICC are also identical in substance to Article 8:108 PECL (Excuse Due to
an Impediment). Only Article 79(2) CISG regarding responsibility for third persons has no
counterpart in the UPICC, but the issue is succinctly addressed in the PECL. (544) As a
consequence, the interpretation of the requirements of Article 79 CISG and Articles 7.1.7
UPICC/8:108 PECL should be the same. Articles 7.1.7(4) UPICC and 8:101(2) PECL (545)
P 107 dealing with the legal consequences of force majeure are particularly helpful as they
may be used to interpret Article 79(5) CISG. (546) These provisions will be discussed in
connection with the different issues arising under the force majeure excuse.
4 Compatibility of the Standard of Article 79 CISG with Contract Practices (Force Majeure
Clauses)
Last but not least, it may be presumed that the force majeure excuse as reflected in
Article 79 CISG was also influenced by contractual force majeure clauses existing at the
time. (547) Typical force majeure clauses which are regularly inserted as boilerplate
clauses in international commercial contracts are essentially in line with Article 79 CISG.
(548)
In particular, the ICC Force Majeure Clause 1985 is based on the general force majeure
formula corresponding to Article 79(1) CISG. (549) It also includes an illustrative list of
force majeure events and provides for the effects of grounds of relief in a somewhat more
detailed manner. (550) The ICC Force Majeure Clause 2003 similarly includes a general
force majeure formula and a list of events, the occurrence of which alters the evidential
balance in favour of the party invoking the clause. (551) The general formula triggering the
consequences of force majeure set out in paragraph 1 of the Clause includes within it
elements of the previous ICC Force Majeure Clause 1985, Article 79 CISG, Article 8:108 PECL
and Article 7.1.7 PECL. (552)
Clause 19 of the 1999 FIDIC Conditions of Contract for EPC/Turnkey Projects, Plant and
P 108 Design-Build and Construction also contains a general force majeure formula which
corresponds to the standard of Article 79 CISG and an illustrative list of force majeure
events. (553) Both the ICC Force Majeure Clause 2003 and Clause 19 of the 1999 FIDIC
Conditions of Contract further include detailed provisions on notice, (554) the duty to
limit the effect of the impediment or to minimize delay, (555) force majeure affecting

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 third parties/subcontractors, (556) the consequences of force majeure, (557) lasting
temporary impediments, optional termination and financial consequences thereof. (558)
Apart from the practically important and influential examples above, many force
majeure clauses correspond to a significant extent with the essential features of the force
majeure excuse under general contract principles. (559) On the basis of a review of a
significant number of force majeure clauses, (560) Fontaine & de Ly have identified the
following elements as classical elements of force majeure: unforeseeability,
unavoidability, uncontrollability (beyond the parties' control; ‘l'extériorité par rapport à
la volonté des parties’) and the effect of rendering the obligation in question impossible.
(561) These authors have also emphasized the great significance of force majeure clauses
(and their analysis) for the discussion of the contents of the force majeure excuse under
the lex mercatoria (or general contract principles). (562)

C Conclusion
It has been seen that an obligor may be excused in one way or another under all contract
laws under review if non-performance is brought about by a ‘force majeure’ event. To be
sure, the relevant requirements vary from one system to another, but the distinctions
P 109 appear to be only slight in nature. The ‘force majeure’ exemption (excuse due to an
impediment beyond the obligor's control and risk) under Article 79 CISG and the
UPICC/PECL has overcome these differences and reflects a good digest of the decisive
requirements. Given its general acceptance, it may truly be regarded as a general
principle of law. (563) This was also acknowledged by the Iran-United States Claims
Tribunal in an award rendered in 1986. (564) Specifically with regard to the test adopted
by Article 79 CISG/Article 7.1.1 UPICC, Zweigert & Kötz note: (565) ‘The test adopted is one
which all legal systems treat as crucial, whether they say so or not, and this explains why
the results of decided cases are so often alike.’ An evaluation of concepts of liability and
exoneration in major domestic legal systems of civil and common law confirms the
character of the force majeure excuse as a general principle of law.
If the force majeure test is compared to other tests of domestic laws, such as
impossibility/absence of fault, frustration or impracticability, it appears that the
individual requirements of force majeure are more straightforward and meaningful. The
exemption is kept as simple and all-inclusive as possible. Probably the best proof for its
success is the fact that many contractual force majeure clauses are drafted on
substantially similar terms. (566) There is only one reservation which should be made
with regard to the language of the force majeure test pursuant to the CISG, UPICC and
PECL: it would be desirable for the (generally recognized) requirement that the obligor
did not assume the risk of the occurrence of the impediment to be explicitly stated. (567)
The question of explicit or implicit risk assumption is a primary element of the force
majeure excuse.
P 110
In English law, it has been observed that ‘the courts recognize that it is often difficult to
draw the line and that the question is one of degree’. (568) Ultimately, the scope of the
force majeure excuse (or exemptions under domestic law) must be gleaned from a study
of the different groups of cases. The great diversity of factual situations may be best dealt
with by distinguishing special categories of cases on the basis of a simple unitary rule
using general terms. Under Article 79 CISG, different categories of cases have already
been developed by legal commentators and may be compared to similar categories
established under domestic legal systems. In view of the analysis set out below, it
appears that the results are to a large extent congruent.
The force majeure excuse nevertheless raises some points of delimitation. The treatment
of initial impediments under the force majeure excuse should follow a standard that is
congruent with the rules on avoidance of contract for significant mistake. (569) Moreover,
it must be determined whether situations of ‘economic impossibility’, ‘unaffordability’ or
hardship are also covered by the scope of the force majeure exemption. So far, it has
been more difficult to ascertain a generally accepted rule. (570) There are two main
reasons for this: on the one hand, some domestic laws decline a theory akin to the
doctrine of changed circumstances or hardship, particularly to revise the contract in such
cases. On the other hand, the CISG does not provide for a rule on hardship, and the text
as well as the legislative history of Article 79 CISG leave room for discussion as to whether
P 110 it also comprises hardship or not. (571)

References
379) Comment No. 1 on Art. 7.1.7 UPICC.
380) See UNCITRAL Digest (2004), Art. 79 para. 6; Zweigert/Kötz at 514: ‘[The test of Art. 79
CISG] depends on the allocation of risks explicitly agreed on by the parties or
inferable from the contract properly construed. The test adopted is one which all
legal systems treat as crucial, whether they say so or not, and this explains why the
results of decided cases are so often alike.’ See also infra p. 112.

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 381) See also supra 70 at n. 358.
382) During the drafting process of the CISG, a proposal that the buyer's obligation to pay
the price should be an absolute obligation to achieve a specific result for which no
exemption was possible was rejected, on the grounds that exempting impediments
such as the outbreak of war or the adoption of exchange control regulations were
conceivable (Stoll, in Schlechtriem (1998), Art. 79 CISG para. 13). For impediments
concerning money obligations in general, see infra p. 170.
383) See Magnus, in Staudinger, Art. 79 CISG para. 11; Stoll/Gruber, in
Schlechtriem/Schwenzer, Art. 79 CISG para. 5.
384) Cf. Comment No. 1 on the 1985 ICC Force Majeure Clause (ICC Publ. No. 421, TLDB
DocID 700650).
385) See infra pp. 189 ff.
386) See infra pp. 213 ff.
387) Where the obligor has assumed a guarantee or the acquisition risk, it will be liable
even without being at fault with regard to the impossibility of performance (see
infra p. 86).
388) See, e.g., §§ 275, 323 of the former German BGB (1900); for the situation under the
revised BGB (2002), see infra pp. 80 ff.; Arts 97, 119 Swiss CO; Arts 1256(1), 1463-1465
Italian Codice civile; Art. 1182 Spanish Codigo civil. In France, the doctrine of
impossibility of performance is only explicitly recognized in the situation where
goods sold are destroyed (Art. 1302 Code civil). However, as already mentioned, a
general excuse exists in case of ‘force majeure’ (supra p. 67). Legal writers note that
an obstacle to performance only serves as a defence if it is an ‘obstacle imprévisible
et irrésistible’ which renders it ‘absolument impossible’ for the obligor to perform
(Zweigert/Kötz, 500, citing Planiol/Ripert VII no. 838). See generally
Jones/Schlechtriem, para. 157 (p. 98).
389) On the concept of initial impossibility in Roman law see Zimmermann, Law of
Obligations, 686 ff.
390) See infra pp. 227 ff.
391) See especially §§ 275, 280-82, 323 BGB (1900), and, e.g.,
Markesinis/Lorenz/Dannemann, Ch. 6; Zweigert/Kötz, 488 ff.; Zimmermann, Law of
Obligations, 810-13. In many respects, the theory of impossibility is similarly
reflected in Swiss law and legal writings (see Arts 97, 119 CO and Wiegand, in Basler
Kommentar, Art. 97 CO paras 7-24, Art. 119 CO paras 1 ff.).
392) See, e.g., Jones/Schlechtriem, para. 158 (p. 99).
393) See the extension of liability for fault to impediments caused by fortuitous events
in Art. 103 CO and § 287 BGB (1900) (likewise, but without reference to the term
impossibility, § 287 BGB [2002]). § 287 2nd sent. BGB (1900) states: ‘It [the obligor] is
also liable during a period of default for impossibility of performance caused by a
fortuitous event, unless the damage would have occurred even if performance had
been made on time.’ For the approach under general contract principles see infra p.
341.
394) Jones/Schlechtriem, para. 158 (p. 99); for Swiss law see Wiegand, in Basler
Kommentar, Art. 119 CO paras 1, 8.
395) For German law see Schlechtriem, ‘The German Act to Modernize the Law of
Obligations’, Oxford U Comparative L Forum 2 (2002) at n. 25 (Ch. 1): ‘The majority
view was critical of such an extension, see Emmerich, in Münchener Kommentar zum
Bürgerlichen Gesetzbuch, 4th ed. 2001, § 275 No. 28; but some judgments of the
Bundesgerichtshof have taken such an approach, e.g., BGH 12.01.1997, VersR 1977,
526.’ For Swiss law see Wiegand, Basler Kommentar, Art. 97 CO para. 14; Pichonnaz,
paras 741 ff. (pp. 175 ff.).
396) For Swiss law see Gauch/Schluep/Schmid/Rey, OR AT, paras 3241-3244; for the
different positions taken by legal writers see Wiegand, in Basler Kommentar, Art. 97
CO para. 14.
397) RGZ 94, 47; RGZ 102, 273; similar considerations have been made in the ‘reservoir
case’ decided by the Swiss Federal Tribunal in 1919 (BGE 45 II 386); see infra p. 436.
398) Magnus, ‘Force Majeure and the CISG’, 7; and, e.g., BGHZ 81, 143 (1981); BGHZ 90, 74
(1984); BGHZ 101, 152 (1987); BGHZ 128, 238 (1995).
399) At pp. 82 ff.
400) See Jones/Schlechtriem, para. 169 (p. 107): ‘The Civil Codes of Germany, Switzerland,
and Italy contain express rules which provide for the ipso jure discharge of the
counter-performance obligation. The civil codes of other countries [Austria, France
and Belgium] only provide for the discharge of the party whose performance has
been rendered impossible. However, in these legal systems, the principle of mutual
discharge is also recognized’ (footnotes omitted).
401) Jones/Schlechtriem, para. 163 (p. 103); for Swiss law see Wiegand, in Basler
Kommentar, Art. 119 CO para. 13. See generally infra pp. 260 ff.
402) See Arts 711, 1138(2), 1606 French Code civil; see also Bucher, ‘Überblick über die
Neuerungen des Wiener Kaufrechts’, 40-41.

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 403) See Canaris, Schuldrechtsreform 2002, IX ff.; Zimmermann, The New German Law of
Obligations, Historical and Comparative Perspectives (2005); id., Saggi, Conferenze e
seminari 48 (2002): 1-49; Schlechtriem, ‘The German Act to Modernize the Law of
Obligations’, Oxford U Comparative L Forum 2 (2002); Berger, Harmonisation of
European Contract Law, ICLQ 50 (2001): 895 ff. As noted by Zimmermann (in Saggi at
p. 9), the analysis of Canaris of the new German law of breach of contract can largely
be taken to constitute its interpretatio authentica, since he was the most influential
member of the (final) commission on the law relating to breach of contract
(Kommission Leistungsstörungen).
404) Bundesminister der Justiz (ed.), Gutachten und Vorschläge zur Überarbeitung des
Schuldrechts (1992).
405) Berger ICLQ 50 (2001): 899; Bonell, An International Restatement of Contract Law (2nd
ed. 1997), 235-36.
406) Directive on consumer sales, Council Directive 1999/44/EC of the European
Parliament and of the Council of 25.05.1999, OJEC L 171 of 07.07.1999 p. 12; Directive
on Combating Late Payment in Commercial Transactions, Council Directive
2000/35/EC of the European Parliament and of the Council of 29.06.2000, OJEC L 200
of 08.08.2000, p. 35, Directive on Electronic Commerce, Council Directive
2000/31/EC of the European Parliament and of the Council of 08.06.2000, OJEC L 178
of 17.07.2000 at p. 1.
407) § 280 BGB (Compensation for breach of duty) reads as follows: ‘(1) If the obligor fails
to comply with a duty arising under the obligation, the obligee may claim
compensation for the loss resulting from this breach. This does not apply if the
obligor is not liable for the failure. (2) The obligee may demand compensation for
delay in performance only if the additional requirement in § 286 is satisfied. (3) The
obligee may demand compensation in lieu of performance only if the additional
requirements of § 281, § 282 or § 283 are satisfied.’
408) Schlechtriem, Oxford U Comparative L Forum 2 (2002), at III.1. (text at n. 31).
409) Id.
410) Id., at 120.
411) See § 275 BGB discussion draft; Canaris, ‘Zur Bedeutung der Kategorie der
“Unmöglichkeit” für das Recht der Leistungsstörungen’, 44-45.
412) Canaris, Schuldrechtsreform 2002, XIII.
413) For the CISG see Magnus, in Staudinger, Art. 28 CISG para. 2; Brunner, Art. 28 CISG
para. 1. This is also why the focus of the present treatise is on the latter aspect.
414) Situations where the obligor cannot reasonably be expected to overcome the
impediment, e.g., where it would have to recover a ring that has been dropped into
the sea after it has been sold but before it has been transferred to the buyer, should
be covered by para. 2 (Canaris, Schuldrechtsreform 2002, XII; Ernst, in Münchener
Kommentar, § 275 BGB para. 37; Schulze, in Handkommentar, § 275 BGB paras 2, 18;
but see Löwisch, in Staudinger, § 275 BGB para. 19 and references there.
415) By contrast, the former § 275 BGB (1900) limited the scope of the provision to
situations of subsequent impossibility. See infra pp. 227 ff.
416) Canaris, Schuldrechtsreform 2002, XII; Zimmermann, Saggi, Conferenze e seminari 48
(2002), 11.
417) Zimmermann, id.
418) Zimmermann, id., at 12; Schulze, in Handkommentar, § 275 BGB para. 19.
419) Canaris, Schuldrechtsreform 2002, XII; id., JZ (2001): 501; Zimmermann, Saggi,
Conferenze e seminari 48 (2002), 12-13; id., The New German Law of Obligations, 46;
Helm, 63 ff.; 159-60; Schulze, in Handkommentar, § 275 BGB para. 20; Heinrichs, in
Palandt, § 275 BGB para. 21; Löwisch, in Staudinger, § 275 BGB para. 76 ff., 94 ff.
However, the distinction between these two situations, and whether it is indicated
in a sufficiently clear way in § 275(2) BGB, is questioned by a number of legal writers
(see Dauner-Lieb, in Anwaltkommentar, § 275 BGB para. 14 and the references in
Zimmermann, in Saggi, p. 13 n. 60).
420) Löwisch, in Staudinger, § 275 BGB para. 96.
421) See infra pp. 221 ff.
422) Ernst, in Münchener Kommentar, § 275 BGB para. 72; but see the comments of the
Official Draft (‘Regierungsentwurf’) of an Act to Modernize the Law of Obligations of 9
May 2001, BT-Drucksache 14/6040, 131, according to which § 275(2), second sent. BGB
operates in both directions, i.e., renders the threshold for the obligor being
responsible for the impediment more stringent, and for the obligor not being
responsible less stringent.
423) See Canaris, JZ (2001): 504; Schulze, in Handkommentar, § 275 BGB para. 18;
Heinrichs, in Palandt, § 275 BGB para. 32.

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 424) See Zimmermann, Saggi, Conferenze e seminari 48 (2002), 14-15; id., The New German
Law of Obligations, 47-48 (noting that ‘this is not a happy solution’, and concluding
that ‘[t]his demonstrates the dangers inherent in any attempt to draw up general
rules for exceptional situations’); Schlechtriem, Oxford U Comparative L Forum 2
(2002) at III.2.(a): ‘Take the frequent case of a luxury car which is stolen after the
conclusion of the sales contract and shipped to Russia. Experience shows that these
cars can be retrieved through special agencies, but at a very high price. Is this
subjective impossibility under subsection (1) or “merely” unreasonable expenditure
under subsection (2)? Probably – and hopefully – these are theoretical concerns,
because the seller, once sued for delivery, will defend himself by reporting the
unhappy course of events as such, thus leaving it to the courts and academic
commentators to qualify whether this defence should be subsumed under
subsections (1) or (2).’
425) Canaris, Schuldrechtsreform 2002, XIII; Zimmermann, Saggi, Conferenze e seminari 48
(2002), 16; Zimmermann, The New German Law of Obligations, 49.
426) Canaris, id., at XIII.
427) Zimmermann, Saggi, Conferenze e seminari 48 (2002), 16-17; id., The New German Law
of Obligations, 49.
428) See infra pp. 358 ff.
429) See Canaris, supra p. 81 n. 412.
430) But see §§ 280, 325 of the former BGB (1900).
431) Zimmermann, Saggi, Conferenze e seminari 48 (2002), 19; Otto, in Staudinger, § 283
BGB para. 19; Heinrichs, in Palandt, § 283 BGB para. 3. § 311a(2) BGB is discussed
infra pp. 227, 230.
432) § 276(1) BGB reads as follows: ‘(1) The obligor is liable for deliberate and negligent
acts or omissions, unless the existence of a stricter or more lenient type of liability
is specified or to be inferred from the other subject matter of the obligation, in
particular the assumption of a guarantee or the procurement risk. The provisions of
§§ 827 [exclusion of responsibility for persons who are in an unconscious state or in
a state of pathological disturbance of mental activity precluding free
determination of will] and 828 [minors] apply mutatis mutandis.’
433) Schulze, in Handkommentar, § 276 BGB para. 1; Zimmermann, Saggi, Conferenze e
seminari 48 (2002), 18; Dauner-Lieb, in Anwaltkommentar, § 276 BGB para. 3; see also
Heinrichs, in Palandt, § 276 BGB paras 1, 3, 29 ff.
434) Zimmermann, id., at 18; see also Schlechtriem, ZEuP (1993): 229.
435) See supra pp. 65 ff.
436) Oxford U Comparative L Forum 2 (2002), [Link]. (text after n. 45).
437) Die Unmöglichkeit der Leistung in ihrem Einfluss auf obligatorische Verhältnisse
(1853).
438) Zimmermann, Law of Obligations, 810; see also Gordley, Am. J. Comp. L. 52 (2004):
513.
439) Id.
440) See infra pp. 246 ff.
441) See infra pp. 227 ff.
442) BGE 57 III 532 (1931).
443) Cf. Bucher, OR AT, 418.
444) See Treitel, Force Majeure and Frustration, para. 3-003.
445) See supra pp. 64 (Dutch law), 66 (objective standard of negligence), 69 at n. 350
(Swiss law) 351.
446) See also the (unpublished) paper by Charles Debattista (draftsman-in-chief) on the
ICC Force majeure and Hardship Clauses 2003, ICC Seminar 08.04.2003 at para. 8; for
American law see infra p. 96.
447) 3 B & S 826 (1863), 2 New Rep. 198.
448) The defendants had agreed to allow the plaintiffs to use a music-hall for concerts on
four specified nights. After the contract was made, but before the first night, the hall
was destroyed by fire.
449) Jackson v. Union Marine Insurance Co. Ltd., (1874) L.R. 10 C.P. 125 (A ship was required,
under a charterparty, to proceed from Liverpool to Newport to load a cargo for San
Francisco. On the first day out from Liverpool, the ship ran aground, and it took six
weeks to refloat her as well as another six months to complete repairs. The Court
held that the charterparty ended upon the mishap, as the jury had found that ‘a
voyage undertaken after the ship was sufficiently repaired would have been a
different voyage (…) different as a different adventure (…)’ (id., at 141; McKendrick,
in Chitty on Contracts, para. 24-006).
450) McKendrick, id., at para. 24-001.
451) Pioneer Shipping Ltd v. B.T.P. Tioxide Ltd (The Nema), [1982] A.C. 724, 752, cited by
McKendrick, id., at para. 24-003.
452) In National Carriers Ltd. v. Panalpina (Northern) Ltd, [1981] A.C. 675, 687, 702, 717; see
McKendrick, in Chitty on Contracts, para. 24-011.
453) McKendrick, id., with reference to Denny, Mott and Dixkson Ltd v. James B. Fraser &
Co. Ltd, [1944] A.C. 265, 275 (Lord Wright); see also Treitel, Frustration and Force
Majeure, para. 16-008.

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 454) [1956] A.C. 696, 728, summarized by McKendrick, id., at para. 24-048. In Davis
Contractors, Lord Radcliffe said: ‘(…) frustration occurs whenever the law recognises
that without default of either party a contractual obligation has become incapable
of being performed because the circumstances in which performance is called for
would render it a thing radically different from that which was undertaken by the
contract. (…) It was not this that I promised to do. (…) There must be (…) such a
change in the significance of the obligation that the thing undertaken would, if
performed, be a different thing from that contracted for.’
455) McKendrick, id., at para. 24-012.
456) See McKendrick, id., at para. 24-014.
457) See Jones/Schlechtriem, para. 159 (p. 100) and references there.
458) McKendrick, id., at para. 24-018; Treitel, The Law of Contract, 861; both with
references to other theories which have been put forward. See also Trakman, Mod. L.
Rev. 46 (1983): 39.
459) The Act only applies to contracts governed by English law, and to contracts which
have become impossible of performance or been otherwise frustrated (McKendrick,
in Chitty on Contracts, para. 24-072). Yet in other common law countries, similar or
virtually identical legislation has been passed (e.g., New Zealand, Canada). The right
to recover money paid under a frustrated contract is also recognized in the U.S. and
in Scotland (Treitel, Frustration and Force Majeure, paras 15-048-51, 15-083).
460) McKendrick, id., at para. 24-068.
461) McKendrick id., at para. 24-069; Treitel, The Law of Contract, 847.
462) Chandler v. Webster, [1904] 1 K.B. 493; McKendrick, id., at para. 24-070/71; Treitel, id.,
at 848-49.
463) It states: ‘(2) All sums paid or payable to any party in pursuance of the contract
before the time when the parties were so discharged (in this Act referred to as ‘the
time of discharge’) shall, in the case of sums so paid, be recoverable from him as
money received by him for the use of the party by whom the sums were paid, and, in
the case of sums so payable, cease to be so payable:
Provided that, if the party to whom the sums were so paid or payable
incurred expenses before the time of discharge in, or for the purpose of,
the performance of the contract, the court may, if it considers it just to
do so having regard to all the circumstances of the case, allow him to
retain or, as the case may be, recover the whole or any part of the sums
so paid or payable, not being an amount in excess of the expenses so
incurred.’

464) It states: ‘(3) Where any party to the contract has, by reason of anything done by any
other party thereto in, or for the purpose of, the performance of the contract,
obtained a valuable benefit (other than a payment of money to which the last
foregoing subsection applies) before the time of discharge there shall be
recoverable from him by the said other party such sum (if any), not exceeding the
value of the said benefit to the party obtaining it, as the court considers just, having
regard to all the circumstances of the case and, in particular,
(a) the amount of any expenses incurred before the time of discharge by the
benefited party in, or for the purpose of, the performance of the contract,
including any sums paid or payable by him to any other party in pursuance of
the contract and retained or recoverable by that party under the last
foregoing subsection, and
(b) the effect, in relation to the said benefit, of the circumstances giving rise to
the frustration of the contract.’
465) For the interpretation of these provisions, see McKendrick, in Chitty on Contracts,
para. 24-074 ff.; Cooke/Oughton, 346 ff.; Treitel, The Law of Contract, 849 ff.; id.,
Frustration and Force Majeure, para. 15-049 ff.
466) See McKendrick, in Chitty on Contracts, para. 24-007, citing J. Lauritzen A.S. v.
Wijsmuller B.V. (The Super Servant Two), [1990] 1 Lloyd's Rep. 1.
467) For the classification into the three categories set out below, see Treitel, The Law of
Contract, 808 ff.
468) Treitel, The Law of Contract, 811, id., Frustration and Force Majeure, Ch. 3;
Cooke/Oughton, 457.
469) Treitel, Frustration and Force Majeure, paras 4-016 ff.
470) Id., paras 4-002 ff.; Cooke/Oughton, 460.
471) Treitel, The Law of Contract, 814 ff.; id., Frustration and Force Majeure, paras 4-041 ff.
472) [1901] 2 K.B. 126, reported by Treitel, The Law of Contract, 818.
473) McKendrick, in Chitty on Contracts, paras 24-021 ff.
474) Treitel, The Law of Contract, 824 ff.; id., Frustration and Force Majeure, Ch. 7. For the
famous English coronation cases see infra p. 466.
475) See Treitel, The Law of Contract, 819 ff.; id., Frustration and Force Majeure, para. 6-
020 ff.; Cooke/Oughton, 459; Lando/Beale, Note No. 2 on Art. 6:111 PECL (p. 328);
Jones/Schlechtriem, para. 181 (p. 114).
476) Restatement 2d on Contracts, § 261, Comment d; infra __.

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 477) British Movietonenews Ltd. v. London and District Cinemas, [1952] A.C. 166, 185; Davis
Contractors Ltd. v. Fareham UDC, [1956] A.C. 696; National Carriers Ltd. v. Panalpina
Northern Ltd., [1981] A.C. 675; see also Bridge, 140.
478) See infra pp. 401 ff.
479) See infra pp.
480) Treitel, The Law of Contract, 824.
481) Cf. Bridge, para. 3.57: ‘Article 79 of the CISG deals under the heading of ‘Exemptions’
which what in English law is classified as impossibility of performance and
frustration, which is an indication of the degree to which it departs from English law
in its conception, if not necessarily in the rigour of its application.’
482) See infra § 8, especially § 8 II.B2. (assumption of a risk, especially to obtain an
import or export license), § 8 IV.D. (temporary and permanent impediments), § 8 V
(legal impediments).
483) See infra pp. 366 ff.
484) See infra pp. 246 ff.
485) McKendrick, in Chitty on Contracts, para. 24-064. See also Bridge, para. 3.57: ‘In
English law, where a contract is frustrated, it is well established that the contract is
prospectively discharged as a matter of law. This inflexible doctrine, which permits
neither party to affirm the contract, makes it difficult to deal with issues of partial
and temporary frustration and may, perhaps, be an undesirable by-product of that
category of frustration known as supervening illegality, where automatic discharge
makes more sense.’
486) McKendrick, id., at paras 24-064 to 24-066.
487) H.R. & S. Sainsbury Ltd. v. Street, [1972] 1 W.L.R. 834, reported by McKendrick, id., at
para. 24-066.
488) Cf. Treitel, The Law of Contract, 702, 713 ff.
489) See also Lando/Beale, Note No. 2 on Art. 1:301(4) PECL (p. 362).
490) Frustration and Force Majeure, para. 6-048.
491) Comment a on § 261 Restatement (2d) of Contracts (1981), with reference to
Comment 2 on § 2-615 UCC.
492) It states: ‘Except so far as a seller may have assumed a greater obligation and
subject to the preceding section on substituted performance:
(a) Delay in delivery or non-delivery in whole or in part by a seller who complies
with paras (b) and (c) is not a breach of his duty under a contract for sale if
performance as agreed has been made impracticable by the occurrence of a
contingency the non-occurrence of which was a basic assumption on which the
contract was made or by compliance in good faith with any applicable foreign
or domestic governmental regulation or order whether or not it later proves to
be invalid.
(b) Where the causes mentioned in para. (a) affect only a part of the seller's
capacity to perform, he must allocate production and deliveries among his
customers but may at his option include regular customers not then under
contract as well as his own requirements for further manufacture. He may so
allocate in any manner which is fair and reasonable.
(c) The seller must notify the buyer seasonably that there will be delay or non-
delivery and, when allocation is required under para. (b), of the estimated
quota thus made available for the buyer.’
493) See infra p. 324 (§ 2-614 UCC), p. 231 (§ 266 Restatement (2d) of Contracts), pp. 249,
256, 260 (§§ 269-270 Restatement (2d) of Contracts).
494) § 2-615(a) UCC; § 261 Restatement (2d) of Contracts.
495) Restatement (2d) of Contracts (1981), Introductory Note on Ch. 11.
496) On Contracts, § 9.6 (p. 605).
497) [Footnote 6 in the original] United States v. Wegematic Corp., 360 F.2d 674, 676 (2d
Cir. 1966).
498) Comment d. on § 261 Restatement (2d) of Contracts.
499) See infra p. 429.
500) See Treitel, para. 6-014; Comment No. 9 on § 2-615 UCC; Hancock Paper Co. v.
Champion International Corp., 424 [Link]. 285 (1975); Northern Illinois Gas Co. v.
Energy Cooperative Inc., 461 N.E. 2d 1049 (1984); Northern Indiana Public Service Co. v.
Carbon County Coal Co., 799 F.2d 265 (1986). In each case the argument that the
contract had been discharged on the ground of impracticability was rejected.
501) See Farnsworth, On Contracts, § 9.7 (pp. 622-23) and references there; Nehf, in Corbin
on Contracts, Ch. 77, pp. 241 ff.; e.g., Chase Precast Corp. v. John J. Paonessa Co., 409
Mass. 371 (1991).
502) Id., § 9.6 (pp. 605-06) and § 9.7 (p. 623).
503) Farnsworth, On Contracts, § 9.7 (pp. 624-25).
504) See infra 465 at n. 2288.
505) Farnsworth, id., at 625-26; Nehf, in Corbin on Contracts, § 77.3 (pp. 258-59); infra pp.
474 ff.
506) Farnsworth, On Contracts, § 9.6 (pp. 605-06).
507) See also Bund, J.L. & Com. 17 (1998): 405 ‘Thus, the overall results may be
substantially similar under both doctrines [i.e., under § 2-615 UCC and Art. 79 CISG]’;
Plate, 141.

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 508) See infra pp. 213 ff.
509) Cf. Nehf, in Corbin on Contracts, § 74.16 (p. 98 ff.)
510) See supra n. 497.
511) Farnsworth, On Contracts, § 9.6 (p. 612); see also Nehf in Corbin on Contracts,
chapters 74-76. At p. 618, Farnsworth refers to a ‘general principle that parties
should be responsible for risks that are within their control’.
512) Cf. Farnsworth, On Contracts, § 9.6 (pp. 606, 613-14).
513) Comment d. on § 261 Restatement (2d) of Contracts.
514) See supra 68 at n. 350.
515) See Farnsworth, id., at 614.
516) See Farnsworth, id., at 616-18; infra p. 157.
517) Id., at § 9.7 (p. 623).
518) See, e.g., Brunner, Art. 79 CISG paras 19, 25; infra pp. 213 ff., 464 ff.
519) See supra § 2 II.
520) See infra p. 106.
521) For a full account of the legislative history and the modifications between Art. 74
ULIS and Art. 79 CISG see Stoll, in Schlechtriem (1998), Art. 79 CISG paras 1-5; see also
Fischer, 55 ff.
522) Namely Belgium, Gambia, Germany, Israel, Italy, Luxembourg, the Netherlands, San
Marino, United Kingdom. Of these Belgium, Germany, Israel, Italy, Luxembourg and
the Netherlands are no longer Contracting States of the Hague Sales Law but have
ratified the CISG.
523) See Schlechtriem, in Schlechtriem (1998), Introduction at p. 1.
524) See also Pace Database, annotated text of CISG, Art. 79, legislative history.
525) For Art. 74(2) ULIS see infra p. 250.
526) For the last part of Art. 74(3) ULIS see the corresponding provision of Art. 80 CISG,
infra p. 113.
527) See also Magnus, ‘Force Majeure and the CISG’, 11.
528) Schlechtriem, Uniform Sales Law (1986), 101.
529) ECE stands for ‘United Nations Economic Commission for Europe’. See Sub-clauses
10.1-10.6 (TLDB DocID 700200, in German also reprinted in Böckstiegel, RIW (1984): 3-
4). Sub-clauses 10.1-10.3 state as follows (emphasis supplied): ‘10.1. The following
shall be considered as cases of relief if they intervene after the formation of the
Contract and impede its performance: industrial disputes and any other
circumstances (e.g., fire, mobilization, requisition, embargo, currency restrictions,
insurrection, shortage of transport, general shortage of materials and restrictions in
the use of power) when such other circumstances are beyond the control of the
parties. 10.2. The party wishing to claim relief by reason of any of the said
circumstances shall notify the other party in writing without delay on the
intervention and on the cessation thereof. 10.3. The effects of the said
circumstances, so far as they affect the timely performance of their obligations by
the parties, are defined in Clauses 7 and 8. Save as provided in paras 7.5., 7.7. and
8.7., if, by reason of any of the said circumstances, the performance of the Contract
within a reasonable time becomes impossible, either party shall be entitled to
terminate the Contract by notice in writing to the other party without requiring the
consent of any Court.’
530) Schlechtriem, id. (footnotes omitted).
531) Magnus, ‘Force Majeure and the CISG’, 11.
532) See Schlechtriem, ‘Uniform Sales Law’ (1986), 101 ff.; infra pp. 216 (ad i), 185 ff., 187
(ad ii), 358 ff. (ad iii).
533) See Schlechtriem, in Schlechtriem/Schwenzer, Introduction at s. 4; Magnus, ZEuP
(1999): 642, 646 and references there; supra § 2 II.2.
534) For the BGB see supra pp. 80 ff.; for the NBW see Hondius, in Weyers, 45, 62 ff. and
supra p. 64, infra p. 228. For the hardship exemption (change of circumstances), see
especially infra pp. 393, 403, 405 (BGB), p. 402 (NBW).
535) Adopted at the Second Session of the Ninth National People's Congress on 15 Mar.
1999. See, e.g., Widmer/Feng Ye, RIW (2001): 844 ff., 848-49.
536) See <[Link]/english/laws/[Link]> (visited in Apr. 2007).
537) [Footnote supplied] Cf. § 287 sent. 2 BGB and infra p. 341.
538) See (also for the following) Ross, ‘Force Majeure and Related Doctrines of Excuse in
Contract Law of the People's Republic of China’, J. Chinese L. 5 (1991): 58, 68. The
General Principles of the Civil Law of the People's Republic of China, adopted 12
Apr. 1986 (Ross, id., at n. 43), and the FECL of the People's Republic of China
adopted 21 Mar. 1985 (Ross, id., at 79) contained a very similar if not identical force
majeure excuse (Ross, id., at 70, 79 ff.).
539) The relevant provision states as follows (cited according to Ross, id., at 79-80):
‘Article 25: When one party cannot perform all or part of its contractual obligations
because of an event of force majeure, it shall promptly inform the other party in
order to diminish the losses that might be caused to the other party, and it must
within a reasonable period provide evidence issued by the relevant agency (…)’
(emphasis added).

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 540) Ross (id., at 81-82) notes in particular: ‘In addition, in the same manner as its
domestic counterpart, the ECL, the FECL requires that a party invoking force
majeure provide “evidence issued by the relevant agency” that a force majeure
event has occurred. As previously noted, the certifying agency in China is not the
local notariat, but rather, the agency with the substantive authority regarding the
specific type of event. Nevertheless, there are grounds for concern regarding the
impartiality of such agencies. (…)’
541) Widmer/Feng Ye, RIW (2001): 849 and references at n. 74.
542) For the relevant provisions of the UPICC and PECL on force majeure see the Annex.
543) Bonell, An International Restatement of Contract Law, 148; see also Magnus, ‘Force
Majeure and the CISG’, 28-29.
544) Art. 8:107 PECL (‘Performance Entrusted to Another’) states: ‘A party which entrusts
performance of the contract to another person remains responsible for
performance.’ See infra pp. 185 ff.
545) It states: ‘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 9 except
claiming performance and damages.’
546) See infra pp. 358 ff., 360.
547) For the example of the ECE-General Conditions for the Supply of Plant and
Machinery for Export of 1953 see supra n. 529.
548) For a discussion of force majeure clauses see infra pp. 383 ff.
549) See Comment No. 1 on the 1985 ICC Force Majeure Clause (ICC Publ. No. 421; TDLB
DocID 700650). Para. 1 states: ‘1. A party is not liable for a failure to perform any of
his obligations in so far as he proves – that the failure was due to an impediment
beyond his control; and – that he could not reasonably be expected to have taken
the impediment and its effects upon his ability to perform into account at the time
of the conclusion of the contract; and – that he could not reasonably have avoided
or overcome it or at least its effects.’
550) See TDLB-DocID 700650. See also TLDB-Principle VI.3 (Force majeure).
551) See ICC Force Majeure Clause 2003 (ICC Publ. No. 650; TLDB DocID 700700). Para. 1
states: ‘Unless otherwise agreed in the contract between the parties expressly or
impliedly, where a party to a contract fails to perform one or more of its contractual
duties, the consequences set out in paras 4 to 9 of this Clause will follow if and to
the extent that that party proves: [a] that its failure to perform was caused by an
impediment beyond its reasonable control; and [b] that it could not reasonably
have been expected to have taken the occurrence of the impediment into account
at the time of the conclusion of the contract; and [c] that it could not reasonably
have avoided or overcome the effects of the impediment.’ For the listed events set
out in para. 3 see infra p. 208.
552) (Unpublished) paper by Charles Debattista (draftsman-in-chief) on the ICC Force
majeure and Hardship Clauses 2003, ICC Seminar 08.04.2003 at para. 7.
553) See Sub-clause 19.1, TLDB DocID 700100. The definition of force majeure in the 1999
FIDIC Short Form of Contract at Sub-clause 1.1.14 also matches the formula of Art.
79(1) CISG. Seppala (Risks, Force Majeure and Termination, s. IV) has stated: ‘In
keeping with international practice, a force majeure clause, Clause 19, has now been
introduced into all the new Books for major works.’
554) ICC Force Majeure Clause 2003 para. 4; 1999 FIDIC Conditions Sub-clause 19.2; see
infra p. 344.
555) ICC Force Majeure Clause 2003 para. 7; 1999 FIDIC Conditions Sub-clause 19.3; see
infra p. 322 at n. 1604.
556) ICC Force Majeure Clause 2003 para. 2; 1999 FIDIC Conditions Sub-clause 19.5; see
infra pp. 185, 188.
557) ICC Force Majeure Clause 2003 paras 4, 5; 1999 FIDIC Conditions Sub-clause 19.4; see
infra p. 360.
558) ICC Force Majeure Clause 2003 paras 6, 8-9; 1999 FIDIC Conditions Sub-clause 19.6;
see infra p. 251.
559) See generally Fontaine/de Ly, 437 ff., 474-75, 482.
560) Id., at 436: ‘Dans un premier temps, le groupe de travail en a rassemblé une
centaine, parmi lesquelles une trentaine, préalablement sélectionnées pour leurs
caractéristiques intéressantes, ont fait l'objet de discussions approfondies. (…) En
vue de la nouvelle édition, plusieurs dizaines de nouvelles clauses sont venues
s'ajouter à la récolte.’
561) Id., at 437.
562) Id., at 474-75.
563) See Zweigert/Kötz, 510 ff., especially at 511-15; Magnus, ‘Force Majeure and the CISG’,
8; Kessedjian, Int'l Rev. L. & Econ. 25 (2005): 430; TLDB-Principle No. VI.3 ‘Force
majeure’ and references there; International Law Commission (Crawford, special
rapporteur), Draft Articles on State Responsibility with commentaries (2001), 187
(Commentary No. 8 on Art. 23). But see Nicholas, ‘Force Majeure and Frustration’, Am.
J. Comp. L. 27 (1979): 231 suggesting that Art. 79 constitutes an awkward compromise
between common law and civil law views, exhibiting a ‘superficial harmony which
merely mutes a deeper discord.’ Undecided Tallon, in Beale/Hartkamp/Kötz/Tallon
(2002), 626: ‘It may be wondered whether the international instruments have
succeeded in harmonizing them [i.e., the national laws, where “a fairly wide
divergence” is found]’.

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 564) Anaconda-Iran, Inc. v. The Government of the Islamic Republic of Iran, et al., award
No. ITL 65-167-3 of 10.12.1986 at 41-43, 13 Iran-U.S. C.T.R. 199, 211-12, Y.B. Com. Arb.
1988, 319, also reported by Aldrich, 311, and Brunetti, Arb. Int. 18 (2002): 355, 359-60
at n.30. The Tribunal stated: ‘Under a variety of names most, if not all, legal systems
recognize force majeure as an excuse for contractual non-performance. Force
majeure therefore can be considered a general principle of law. It follows that the
right to invoke force majeure does not depend on, or arise out of, an express
contractual provision.’ See also Mobil Oil Iran Inc. v. Islamic Republic of Iran, Award
No. 311-74/76/81/150-3 of 14.07.1987 at para. 117 (‘It also is admitted generally that
force majeure, as a cause of full or partial suspension or termination of a contract, is
a general principle of law which applies even when the contract is silent.’).
565) At 514.
566) For the ICC Force Majeure Clause 1985 and 2003 and Clause 19 of the 1999 FIDIC
Conditions of Contract see supra p. 107.
567) See supra at p. 76 n. 380; infra pp. 112, 116 ff.
568) Beatson, in Anson's Law of Contract, 546, with reference to Ocean Tramp Tankers
Corporation v. V/O Sovracht (The Eugenia), [1964] 2 Q.B. 226, 239; National Carriers
Ltd. v. Panalpina (Northern) Ltd., [1981] A.C. 675, 688; Pioneer Shipping v. B.T.P. Tioxide
(The Nema), [1982] A.C. 724, 744.
569) See infra pp. 235 ff.
570) See also Tallon, in Beale/Hartkamp/Kötz/Tallon (2002), at 626: ‘As regards the
manner in which the systems deal with the legal consequence of the occurrence of
unforeseen but not completely insurmountable events, opposing points of view are
much clearer.’
571) See infra pp. 213, 391 ff.

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Document information Chapter 4: Force Majeure Excuse, Section 8: Individual
Requirements of the Force Majeure Excuse under General
Publication Contract Principles, I Introduction
Force Majeure and
Hardship under General A Scope of Application of the Force Majeure Excuse: Non-performance of a
Contract Principles: Contractual Obligation
Exemption for Non-
performance in The force majeure excuse can be invoked by a party in case of non-performance of any
International Arbitration P 111 obligation arising out of the parties' contractual relationship, including the obligation
to claim restitution upon termination of the contract. (572) The excuse applies regardless
of whether the failure to perform is due to a partial, complete, temporary or final
Bibliographic reference impediment that already existed at the time of contracting or occurred only later, and
whether the impediment affects third-party rights, the quantity of goods to be delivered
'Chapter 4: Force Majeure or other aspects of performance. (573)
Excuse, Section 8:
Individual Requirements of The prevailing view on Article 79 CISG holds that the force majeure excuse can also be
the Force Majeure Excuse applied – although only in very narrow and rare cases – when defective goods are
under General Contract delivered. (574) In case of duties whose breach has only negative consequences for the
Principles, I Introduction', non-performing party's own claims but does not trigger a claim for damages (so-called
in Christoph Brunner , Force ‘Obliegenheiten’), such as the duty to give notice of lack of conformity according to
Majeure and Hardship Articles 38-39 CISG or the duty to mitigate damages (Article 77 CISG), the force majeure
under General Contract excuse may be applied by analogy so that the negative effects of a failure to discharge
Principles: Exemption for such a duty do not take place. (575) The effects of the force majeure excuse on
Non-performance in contractually agreed penalties or liquidated damages is discussed below. (576)
International Arbitration, There may be no non-performance in the first place if the obligor is merely under a duty
International Arbitration of best efforts and does not have to achieve a particular result. (577) Moreover, the seller
Law Library, Volume 18 of generic goods must not be exempted where the goods are destroyed or damaged by a
(© Kluwer Law force majeure event only after delivery (i.e., performance). The seller does not have to
International; Kluwer Law deliver the goods a second time or cure possible defects because the relevant risk has
International 2008) pp. 110 passed to the buyer. (578) The same is true for the contractor who has delivered the
- 116 commissioned work. When the risk of loss (risk to pay the price) has passed to the buyer
(which usually also occurs upon delivery), the buyer may not be exempted from paying
the price (wholly or in part) even though the goods are destroyed or damaged by some
external event. (579) In these situations there is no non-performance, and the question of
exemption does not arise.

B The Requirements and Legal Effects of the Force Majeure Excuse in a

Nutshell
The force majeure excuse under general contract principles contains the following
requirements:
(1) the obligor did not assume the risk of the occurrence of the impediment, in
P 112 particular, it could not reasonably be expected to have taken the impediment
into account at the time of conclusion of the contract (no explicit or implicit risk
assumption; infra § [Link]); and
(2) the impediment was beyond the obligor's (typical) sphere of control (infra § [Link], §
[Link], § 8.V); and
(3) the non-performance was caused by the impediment (infra § [Link]); and
(4) the impediment or its consequences could not reasonably have been avoided or
overcome (infra § [Link]).
The impediment may occur after the conclusion of the contract (supervening event) or
already exist at the time of contracting (antecedent event). (580)
The negative requirement that the obligor has not assumed the risk of the occurrence of
the impediment is not explicitly stated in Article 79 CISG, Article 7.1.7 UPICC or Article
8:108 PECL embodying the force majeure exemption. However, it is undoubtedly a
primary (or preliminary) requirement. It may be derived from the ‘impediment beyond
control’ element or the requirement that the impediment could not reasonably have
been taken into account (no implicit risk assumption). (581) Where the obligor has
contractually assumed a particular risk and therefore a ‘greater obligation’, there may be
– strictly speaking – no impediment in the first place. For example, where the seller bears
the procurement risk (no limited source of performance), there is actually no impediment
to performance if the seller is let down by its usual supplier as long as goods of the
relevant type and description are available in the market. (582)
Moreover, the requirement that the risk of the events was not assumed by the
disadvantaged party is explicitly mentioned in the hardship exemption of the UPICC and
the PECL. (583) Since the hardship concept may be understood as a sub-category of the
force majeure exemption (albeit with different legal consequences), it follows that this
requirement must also apply under the force majeure test. The element of risk
assumption is also referred to in Article 7.1.2 UPICC (exemption due to interference by the
other party). (584) Furthermore, it is emphasized in various domestic laws. (585)

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 As the parties may modify the allocation of the risk of the occurrence of an impediment,
P 113 it is also clear that the force majeure excuse is not mandatory. (586) This is not only
true for its application as such or for particular impediments, but also with regard to its
legal effects.
If the obligor is excused, it is not liable for damages and may not be requested to render
specific performance. (587) To the extent that the right to request a cure or substitute
performance is equally affected by the impediment, these rights are also excluded.
However, the obligee may still resort to any other available remedy, i.e., termination of
the contract, price reduction, interest on money due and the right to withhold
performance. (588)

C Exemption Due to Interference by the Other Party and Force Majeure

The force majeure excuse is to be distinguished from circumstances in which
performance is not affected by reason of unexpected external events, but because of an
action or omission of the other party to the contract, i.e., conduct attributable to the
obligee. For such an interference by the other party, the CISG, and following its approach,
the UPICC and PECL, include a special ground for exemption (‘exemption due to
interference by the other party’; Article 80 CISG; Articles 7.1.2, 7.4.7 UPICC; Articles 8:101(3),
9:504 PECL). Article 80 CISG provides that ‘[a] party may not rely on a failure of the other
party to perform, to the extent that such failure was caused by the first party's act or
omission’. (589) Many domestic legal systems provide for similar principles. (590)
If and to the extent that the non-performance is caused by the conduct of the obligee,
the obligee will not be entitled to rely on the non-performance. Conduct by one party
P 114 that prevents performance by the other is inconsistent with the parties' mutual
expectations and the principle of good faith. (591) It would be contradictory to good faith
and abusive for the obligee to draw a benefit from abreach of duty caused by itself. A
party is generally under a duty not to prevent performance, or to co-operate with the
other party so as to enable it to render performance. A failure to do so amounts to a
breach of duty. (592) The consequences caused by such a breach are to be borne by the
party in breach; in particular, it may not rely on the non-performance of the other party
caused by such breach. The obligor's other remedies based on the obligee's breach are
not affected by the exemption. If the obligee's interference qualifies as a non-excused
non-performance (breach of contract), the obligor may also have a claim for damages.
(593)
Article 80 CISG operates not only as an exemption, but also as a ground for limiting the
extent of recoverable damages by the obligee if the latter is not predominantly, but only
partly responsible for the obligor's non-performance. (594) This is explicitly stated in
Article 7.4.7 UPICC (‘Harm due in part to aggrieved party’) and Article 9:504 PECL (‘Loss
Attributable to Aggrieved Party’). (595) Where the non-performance is only partly due to
interference by the obligee, the court must establish to what extent the obligor is liable
itself, and to what extent non-performance was due to the interference of the other party.
The obligee's damages claim will then have to be reduced proportionally. (596)
The exemption due to interference by the obligee requires that the non-performance has
been caused by any act or omission of the obligee, including the conduct of its
employees, suppliers and subcontractors engaged in the performance of the contract.
P 115 (597) It is irrelevant whether the interference by the obligee amounts to a breach of
contract, is caused by a force majeure event (as to which the obligee bears the risk), or
whether the obligee is at fault or not. (598) For example, where the buyer is late in
providing the seller with the required plans for the construction of a machine, the seller
is not responsible for the resulting delay in delivering the machine even if the plans have
been destroyed by a fire beyond the buyer's control. In this situation the seller has,
however, no claim for damages against the buyer because the late delivery of the plans is
excused under the force majeure exemption. (599) Further, the obligor is generally not
under a duty to overcome an obstacle for which the obligee is responsible. Exceptions
are nonetheless conceivable pursuant to the general obligation of good faith, e.g., where
a minor interference by the obligee can be overcome by the obligor with little effort. In
particular, the obligor may be under a good faith obligation to inquire with the obligee as
to whether the specifications given to it by the obligee (especially if contradictory or
unclear, or if the obligor is more proficient) are accurate and not mistaken. (600)
Examples of interferences by the obligee causing a situation of non-performance by the
obligor include, in particular, cases where the obligee fails to perform its duty to co-
operate: the defective construction of a machine may be attributable to defective
drawings or instructions supplied by the buyer; the goods may be lost because the seller
followed the buyer's instruction when dispatching them; the buyer may (in view of Article
48 CISG) wrongly reject an offer by the seller to make delivery of substitute goods; (601)
the buyer may be late in designating the means of transportation and so delay delivery;
the buyer may fail to request an import permit in time and so delay delivery of the
goods; the seller may not communicate details of the loading port on time and so
prevent the buyer from opening a letter of credit on time. (602)
The exemption due to interference by the other party, if applicable, prevails over the
force majeure exemption. Whereas the force majeure exemption only releases the obligor

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 from its performance obligation and damages, the exemption due to interference by the
other party also excludes all other remedies of the obligee. (603) Thus the obligor's
P 116
failure to perform caused by the obligee not only prevents the latter's remedies for
specific performance and damages, but also for termination, price reduction or
interest on monies due. (604) Indeed, where the obligee's conduct is manifestly the
dominant cause for the obligor's failure to perform, (605) such ‘failure’ may be said to
lose the quality of non-performance altogether, and should not be characterized as
‘excused non-performance’. (606) If the obligee's conduct is only a partial cause for the
obligor's failure to perform, there is still non-performance; however, the obligee's
damages claim will then be reduced by the extent of the obligee's contribution to such
non-performance.
Given the conceptual difference between the two exemptions, it is justified to treat them
separately. To be sure, the exemption due to interference caused by the obligee is
actually covered by the scope of the force majeure excuse, since, to the extent that the
non-performance is caused by the obligee, it will be beyond the obligor's sphere of
control. The obligor may invoke both exemptions, but the exemption due to interference
by the obligee will prevail if its requirements are met because its legal consequences are
more extensive.
The 1999 FIDIC Conditions of Contract explicitly defines force majeure as an ‘exceptional
event or circumstance: (a) which is beyond a Party's control, (…), and (d) which is not
substantially attributable to the other Party’. (607) Thus, if the other party (the obligee) is
substantially responsible for an event which prevents the obligor from performing any of
its obligations under the contract, it will have to bear the consequences itself and may
become liable for non-performance. For example, the Contractor will be entitled to an
extension of time for completion if completion is delayed by ‘any delay, impediment or
prevention caused by or attributable to the Employer, the Employer's Personnel, or the
Employer's other contractors on the Site’ (Sub-clause 8.4(c) of the Conditions of Contract
for EPC/Turnkey Projects). The Contractor may then also be entitled to payment of the
P 116 cost incurred as a result of the delay (Sub-clauses 8.9, 20.1).

References
572) See Bianca/Bonell/Tallon, Art. 79 CISG para. 2.4.1; Stoll/Gruber, in
Schlechtriem/Schwenzer, Art. 79 CISG para. 5.
573) See Magnus, ‘Force Majeure and the CISG’, 14.
574) See infra pp. 189 ff.
575) Magnus, in Staudinger, Art. 79 CISG para. 14; Stoll/Gruber, in
Schlechtriem/Schwenzer, Art. 79 CISG para. 8; Brunner, Art. 79 CISG para. 3.
576) See infra p. 347.
577) See supra pp. 70 ff.
578) The supplier's respective risk (in German legal terminology referred to as
‘Leistungsgefahr’, see Brunner, Art. 66 CISG para. 10) passes onto the buyer upon
proper delivery (see id., and, for provisions on the place of performance, Art. 31
CISG, Art. 6.1.6 UPICC, Art. 7:101 PECL).
579) For the passing of risk (so-called ‘Preisgefahr’) see Arts 66 ff. CISG.
580) See infra pp. 227 ff.
581) Cf. Comment 1 to Art. 7.1.7 UPICC (Illustration); Lando/Beale, Comment A. on Art.
8:108 PECL (p. 380). For the foreseeability requirement see infra pp. 156 ff.
582) Where a party has assumed the risk of obtaining a public license required for its
performance, and the license is refused, there is an impediment with respect to the
primary performance (e.g., delivery of goods). Yet if the risk assumption is
understood as a guarantee, the obligor's obligation to indemnify the obligee is an
alternative obligation which does not become impossible.
583) Art. 6.2.2(d) UPICC; Art. 6:111(2)(c) PECL.
584) See infra n. 589.
585) See supra p. 96 (American law); p. 86 (German law); p. 64 (Dutch law); p. 76 n. 380;
infra p. 118 at n. 614.
586) See Lando/Beale, Comment A. on Art. 8:108 PECL (p. 379); Fontaine/de Ly, 474. See
also infra pp. 150 ff.
587) See infra pp. 345 ff.
588) See infra pp. 366 ff.
589) Art. 7.1.2 UPICC states: ‘A party may not rely on the non-performance of the other
party to the extent that such non-performance was caused by the first party's act or
omission or by another event as to which the first party bears the risk.’

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 590) See Treitel, Remedies for Breach of Contract (1988), 292 ff. (paras 226-227);
Lando/Beale, Note 3 on Art. 8:101 PECL (p. 362); Stoll/Gruber, in
Schlechtriem/Schwenzer, Art. 80 CISG para. 1. In some civil law systems the
obligee's refusal to accept performance duly tendered, or to do any preliminary act
which it is obligated to perform and without which the obligor is unable to perform,
amounts to no more than mora creditoris (default of the obligee), which is not, of
itself, a breach (Treitel, id., at p. 295; see, e.g., Art. 91 OR; § 292 BGB). The main
consequence is that the obligee's default excludes a default (delay) by the obligor.
See also the provisions on contributory fault and damages, e.g., § 254 BGB, Art. 44
OR, Art. 1227(1) CCit. For the common law see Treitel, id., at para. 226, and Comment
d. on § 261 Restatement (2d) of Contracts, where it is stated: ‘If the event that
prevents the obligor's performance is caused by the obligee, it will ordinarily
amount to a breach by the latter and the situation will be governed by the rules
stated in Chapter 10, without regard to this Section.’ The Comment particularly
refers to § 237, which states: ‘Except as stated in § 240, it is a condition of each
party's remaining duties to render performances to be exchanged under an
exchange of promises that there be no uncured material failure by the other party
to render any such performance due at an earlier time.’
591) See, e.g., Honnold, para. 436.4 (p. 499); Lando/Beale, Comment B. on Art. 8:101 PECL
(p. 360).
592) See also Art. 5.1.3 UPICC (‘Co-operation between the parties’) and Comment, where it
is stated that ‘[a]lthough the principal concern of the provision is the duty not to
hinder the other party's performance, there may also be circumstances which call
for more active cooperation’.
593) See, e.g., Stoll/Gruber, in Schlechtriem/Schwenzer, Art. 80 CISG para. 11. If according
to the purpose of the duty to co-operate, its breach only results in legal
disadvantages for the obligee (because it may not rely on the obligor's failure to
perform), and does not also serve as a ground for other remedies, especially for
claiming damages, it may be referred to as ‘Obliegenheit’ in German legal
terminology (see Magnus, in Staudinger, Art. 80 CISG para. 5). Whether the obligee's
duty to co-operate is a duty which makes it liable for damages in case of non-
performance or not may have to be established through contract interpretation. For
work contracts governed by Swiss law, see Gauch, Der Werkvertrag, paras 1344-45
and references there; Werz, Delay in Construction Contracts, Diss. Fribourg 1994, 273;
see also Weber, in Berner Kommentar, Art. 92 OR paras 9 ff.
594) See Schlechtriem, Internationales UN-Kaufrecht, para. 298; Audit, para. 188;
Herber/Czerwenka, Art. 80 CISG paras 7-8; Magnus, in Honsell, Art. 80 CISG para. 12;
Stoll/Gruber, in Schlechtriem/Schwenzer, Art. 80 CISG paras 7, 10; Brunner, Art. 80
CISG para. 6.
595) Art. 7.4.7 UPICC states: ‘Where the harm is due in part to an act or omission of the
aggrieved party or to another event as to which that party bears the risk, the
amount of damages shall be reduced to the extent that these factors have
contributed to the harm, having regard to the conduct of each of the parties.’
596) See Brunner, Art. 80 CISG paras 5 ff.; Magnus, in Staudinger, Art. 80 CISG paras 12 ff.;
Stoll/Gruber, in Schlechtriem/Schwenzer, Art. 80 CISG paras 4 ff.
597) See Art. 79(1), (2) CISG; Art. 8:107 PECL; infra pp. 185 ff.
598) See, e.g., Stoll/Gruber, in Schlechtriem/Schwenzer, Art. 80 CISG paras 3-5; Tallon, in
Bianca/Bonell, Art. 80 CISG para. 2.3.
599) Magnus, in Staudinger, Art. 80 CISG para. 7; Neumayer/Ming, Art. 80 CISG para. 2;
Schlechtriem, Internationales UN-Kaufrecht, para. 297.
600) See Stoll/Gruber, in Schlechtriem/Schwenzer, Art. 80 CISG para. 5 and references
there.
601) See OLG Koblenz 31.01.1997, CISG-online No. 256.
602) See OGH 06.02.1996, CISG-online No. 224.
603) Magnus, in Staudinger, Art. 80 CISG para. 7; Neumayer/Ming, Art. 80 CISG para. 2;
Herber/Czerwenka, Art. 80 CISG para. 4; Schlechtriem, Internationales UN-Kaufrecht,
para. 297; Stoll/Gruber, in Schlechtriem/Schwenzer, Art. 80 CISG paras 2-3; Brunner,
Art. 80 CISG para. 7. This may also be seen from Art. 74(3) ULIS, the predecessor of
Art. 79 CISG, which includes the principle now embodied in Art. 80 CISG and
specifies that the legal consequences in case of interference by the other party are
more extensive (supra n. 526).
604) Stoll/Gruber, in Schlechtriem/Schwenzer, Art. 80 CISG para. 9; Magnus, in
Staudinger, Art. 80 CISG para. 17; Brunner, Art. 80 CISG para. 7 and references there.
605) See Magnus, in Staudinger, Art. 80 CISG para. 14; Brunner, Art. 80 CISG para. 6.
606) Comment No. 1 on Art. 7.1.2 UPICC.
607) 1999 FIDIC Conditions of Contract (Red, Yellow, Silver; TLDB DocID 700100), Sub-
clause 19.1 (‘Definition of Force Majeure’).

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.

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