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Litigation Costs as Reimbursable Damages

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including ancillary legal expenses, is recoverable in most jurisdictions.55 In consideration of the full compensation objective of Article 74,56 the use of different standards for recovering judicial-related and extrajudicial legal costs is not justified. The party’s role as claimant or defendant is of no significance for the application of UN Sales Law. Ultimately, the only standard for awarding legal costs of any kind, whether claimed by the plaintiff or defendant, should be whether the expenses, the reimbursement of which are sought, are a consequence of a breach of contract under Articles 45 and 61.

It should be noted that not all claims are for damages related to a breach of contract. For example, the buyer may seek negative declaratory action in contemplation of a seller’s suit for payment.57 If the buyer is unsuccessful because the claim for the purchase price rightly exists, then the prevailing defendant on the basis of Articles 61 and 74 should be able to claim reimbursement of the costs of the legal defence.58 In this case, the prevailing defendant is entitled to damages because the plaintiff is in breach of the contract through the negation of the valid claim for the purchase price.59 If, however, the declaratory action is decided in favor of the plaintiff, he or she is not entitled to damages pursuant to Article 74 due to a lack of a breach of contract by the defendant. A different outcome would arise if the seller were held in breach by making an unjustified demand for payment.60

This analysis shows that the defendant, as well as the plaintiff, is entitled to recover legal costs under Article 74. Thus, the statement that the award of costs of judicial proceedings as damages according to Article 74 favors the plaintiff61 is not accurate as a generalization. It is correct to state that the party to a sales contact whose claims are not met as stipulated in the contract is privileged because of the remedies provided by Articles 45 and 61. However, this is the explicitly formulated objective of the CISG:62 to restore the balance of the bargain (contract) after the occurrence of a breach.

The argument that the reimbursement of litigation or arbitration expenses is outside of the scope of the CISG63 runs counter to the goal of unification of law upon which the CISG is premised. In the area of collecting legal costs, bringing the issue within the scope of the CISG avoids the various and complicated criteria for awarding such damages

Un-Kaufrecht (Vienna and New York: Springer, 1991), 213; Herber and Czerwenka, Internationales Kaufrecht, Article 74, marginal note 7.

55Supra notes 12–15.

56For more detail, see CISG Advisory Council, Opinion No. 6, para. 1.1, at 251.

57Such arrangements occur, for example, if the buyer wants to deny the seller the ability to select the court of the dispute in cases were various courts would have jurisdiction over the case.

58Cf. supra note 54.

59Gunter¨ Hager and Felix Maultzsch in Einheitliches Un-Kaufrecht, 5th ed. (ed. P. Schlechtriem and I. Schwenzer) (Munich: Beck-Verlag, 2008), Article 64, marginal note 5; Christoph Benicke in Munchener¨ Kommentar zum Handelsgestzbuch: Hgb, Band 6: Viertes Buch, 2nd ed. (Munich: Beck-Verlag, 2007), Article 64, marginal note; Magnus in Staudinger, Article 64, marginal note 13.

60Cf., e.g., Bundesgerichtshof, 62 Neue Juristische Wochenschrift 1262, 1263 (2009) (“A contracting party which asks for something from the other party to which it is not obliged to by the contract or which exercises a right to alter a legal relationship which does not exist, violates its obligation of consideration pursuant to Section 241 (2) German Civil Code”).

61Schwenzer, “Rechtsverfolgungkosten als Schaden?,” 417, 423; Schwenzer in Kommentar zum Einheitlichen Un-Kaufrecht, Article 74, marginal note 30.

62Supra note 10.

63Supra notes 27 and 30.

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found in the national legal systems64 and purports a solid basis for the reimbursement of contingency fees or costs for party funding, issues that are generally not covered by the national procedural laws.

Even when applying the CISG generously, it is important to recognize that the mere incurring of costs is not sufficient to claim damages; the costs have to be causally related to a prior breach of contract. However, situations are conceivable where an unjustified claim can qualify as a violation of contractual obligations and constitute a breach of contract.65 This particularly applies if a claim is clearly unsubstantiated, the amount claimed is deemed to be abundantly excessive, or the claim is an act of bad faith, such as where its primary purpose is exercising pressure on the other party.

IV. Remarks

The CISG’s remedial provisions sanction every breach of contract by allowing damage claims that aim to fully compensate the nonbreaching party. This remedial objective supports recover of legal expenses. However, it is conceivable that a party cannot, despite favorable ruling, claim such costs as damages because the other party is not in breach of contract. This is often the case when the defendant is the winning party. This result is consistent with the CISG principle that damages are only justified when there is a breach of contract. However, because legal costs are monetary losses, and the purpose of the CISG is as a unifying law, legal costs should be recognized as recoverable damages under Article 74. Any prevailing party should be able to make a claim for reimbursement of legal costs.

64In such way, Section 91 of the German Code of Civil Procedure generally regulates the allocation of costs by means of the principle of instigation regardless of fault, Max Vollkommer in Zoller,¨ Zivilprozessordnung, 28th ed. (ed. R. Geimer et al.) (Cologne: Verlag Dr. Otto Schmidt, 2010), §88, marginal note 11; Bundesgerichtshof, 59 Neue Juristische Wochenschrift 2490 no. 19 (2006).

65Cf., e.g., Bundesgerichtshof, 62 Neue Juristische Wochenschrift 1262, 1263 (2009); Magnus in Staudinger, Article 7, marginal note 47; Brunner, Un-Kaufrecht – CISG, Article 30, marginal note 7; Annette Kock, Nebenpflichten im UN-Kaufrecht (Regensburg: Roderer Verlag, 1995), 32; for criticism, see Schlechtriem, “Verfahrenskosten als Schaden in Anwendung des UN-Kaufrechts,” 51.

18 Excuse of Impediment and Its Usefulness

Martin Davies

I. Introduction

The title of Joseph Heller’s famous novel Catch-22 is often used to describe any situation in which there are only two alternative choices, both of which lead to unpleasant outcomes. The real Catch-22 was tighter and more vicious: both alternatives led to the same unpleasant outcome, from which there was no escape. The novel is set during World War II and it follows the fortunes of Captain John Yossarian, a bomber pilot in a squadron that faced grave risks of death on every mission. Catch-22 made it impossible to get out of flying a mission: if a pilot was sane enough to realize the risks, he was not crazy enough to be grounded because of mental instability; if he was crazy enough not to realize the risks, he would go on flying without asking to be grounded.

There was only one catch and that was Catch-22, which specified that a concern for one’s safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn’t, but if he were sane he had to fly them. If he flew them he was crazy and didn’t have to; but if he didn’t want to he was sane and had to.1

Article 79 of the CISG has much the same structure, which explains why it very seldom applies in cases where circumstances change drastically.2 If a contracting party realizes that a change in circumstances might drastically affect the performance of the contract, he or she should have made provision in the contract by including a force majeure clause, a price escalation clause, or some other provision designed to mitigate the consequences if the foreseen circumstance came to pass. If some such provision is included in the contract, Article 79 should not apply, because Article 6 provides that the parties’ own

1Joseph Heller, Catch-22 (New York: Simon & Schuster, 1961), 54.

2UNCITRAL Digest of Case Law on the United Nations Convention on the International Sale of Goods

(New York: United Nations, 2008), 253, Article 79, para. 7 (“Article 79 has been invoked with some frequency in litigation, but with limited success”); Schlechtriem and Schwenzer in Commentary on the UN Convention on the International Sale of Goods (CISG), 3rd ed. (ed. P. Schlechtriem and I. Schwenzer) (Oxford: Oxford University Press, 2010), 1063 (“The provision’s drafting history, systematic placement and wording imply that such an exemption should be considered only under very narrow conditions”).

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agreement preempts the operation of the CISG.3 If no special provision is included, Article 79 should still not apply in the event of a change of circumstances because the parties took the change of circumstances into account when making the contract.4 In contrast, if a person fails to realize that a change in circumstances might drastically affect the performance of the contract, then Article 79 still should not apply, because such events are very commonly taken into account by reasonably prudent contracting parties, and Article 79 only provides relief against impediments to performance that “could not reasonably be expected to have [been] taken . . . into account at the time of the conclusion of the contract.” If, for example, a seller is crazy enough not to realize that the market price of its product and the cost of raw materials might go up during the term of its contract, then it will go ahead and put itself in danger by agreeing to a long-term contract at a fixed price. In those circumstances, Article 79 should not apply to provide any relief, because such risks can and should have been taken into account when the contract was made. If the seller is sane enough to realize that the duration of contractual performance will be long enough that the market price and/or cost of materials might go up considerably, it will bargain for inclusion of a price escalation clause in the contract and Article 79 will have no work to do, or, alternatively, the seller will knowingly take the risk and Article 79 will still have no work to do because the risk was taken into account at the time of contracting.

The uselessness of Article 79 noted here is, of course, an exaggeration for rhetorical effect. There may be cases where something truly unexpected happens to interfere with contractual performance, in which case Article 79 should come into play. Nevertheless, for more routine impediments such as price rises, currency devaluations, predictable natural causes, and so forth, the operation of Article 79 is much more constrained because any party to a transnational sales contract should be expected to take into account a large number of possible adverse future events.5 This was noted from the very beginning of the CISG’s existence. The UNCITRAL Secretariat Commentary noted that:6

All potential impediments to the performance of a contract are foreseeable to one degree or another. Such impediments as wars, storms, fires, government embargoes and the closing of international waterways have all occurred in the past and can be expected to occur again in the future. Frequently, the parties to the contract have envisaged the possibility of the impediment which did occur. Sometimes they have explicitly stated whether the occurrence of the impeding event would exonerate the non-performing

3However, in one case a court considered both the parties’ own force majeure clause and Article 79: OLG Hamburg; 1 U 167/95; February 28, 1997, available at http://cisgw3.law.pace.edu/cases/970228g1.html. This seems to have been because the court concluded that the scope of the force majeure clause was no broader than Article 79: see id., para. 1(d), translation by Linus Meyer (“Therefore, the provision has the same effect as Article 79 CISG”).

4Article 79 applies only to an impediment that “could not reasonably be expected to have [been] taken . . . into account at the time of the conclusion of the contract.”

5Catherine Kassedjian, “Competing Approaches to Force Majeure and Hardship,” 25 International Rev. of L. & Economics 415, 418 (2005) (“[A]ny party to a transnational sales contract is deemed to be a ‘professional.’ As such, she is expected to analyze the market, the situation in the country(ies) where the manufacturing of the goods takes place, where the delivery should occur, where the transport passes, and so on for each step in the performance of the contract. Such an analysis would require the party to foresee a large number of events, particularly in the unsettled world in which we are”).

6UNCITRAL Secretariat, Commentary on the Draft Convention on Contracts for the International Sale of Goods, U.N. Doc. A/Conf. 97/5, 1978, at p. 55.

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party from the consequences of the non-performance. In other cases it is clear from the context of the contract that one party has obligated himself to perform an act even though certain impediments might arise. In either of these two classes of cases, [CISG Article 6] assures the enforceability of such explicit or implicit contractual stipulations.

Most of the cases relating to Article 79 have understandably focused on the frustratingly enigmatic concept of “impediment,”7 but the analysis in the pages that follow places more emphasis on the requirement that the party seeking relief could not reasonably have been expected to take the impediment into account when making the contract. The other two requirements of Article 79 – that the failure to perform be “due to” the impediment and that the party seeking relief could not have avoided or overcome the impediment or its consequences – are not dealt with in detail here, because the main argument is that the requirement that the impediment could not reasonably have been taken into account is the controlling feature of Article 79. Nevertheless, the inquiry begins, as it must, with the concept of “impediment” itself.

II. Impediment

The legislative history of Article 79 does not clearly indicate why the word “impediment” was chosen. At the 1964 Hague Conference that produced the Uniform Law on the International Sale of Goods (ULIS),8 the CISG’s predecessor, debate on the equivalent provision (ULIS Article 74) centered on the choice between two words: “obstacle” and “circumstances.”9 “Circumstances” was chosen at the insistence of a civil law group, led by the Federal Republic of Germany, which feared that use of the word “obstacle” might be interpreted to refer only to external events, rather than subjective matters such as the seller’s due care, and might also bar excuse based on extreme and onerous changes in economic circumstances.10 The word “circumstances” more likely includes a drastic change in costs or other economic conditions. Professor Honnold stated that UNCITRAL’s use of the word “impediment” in what became Article 79 of the CISG was intended to revert to a word (like “obstacles”) that implied an external, objective barrier to performance.11 The UNCITRAL Working Group produced two alternatives, A and B, both intended to produce this result.12 The Working Group largely adopted Alternative A but imported the concept of “impediment” from Alternative B13 in producing the first draft of what would become Article 79.14 After the draft emerged from the Working

7CISG-AC Opinion No. 7, Exemption of Liability for Damages under Article 79 of the CISG (Rapporteur: Alejandro Garro), para. 4 (“[T]he bulk of judicial decisions and arbitral awards touching on Article 79 focus, by and large, on the standards for exemption that may qualify as excuses under the guise of ‘impediments’”).

8Convention relating to a Uniform Law on the International Sale of Goods, 1964, 834 U.N.T.S. 107 (hereafter ULIS).

9John Honnold and Harry Flechtner, Uniform Law for International Sales under the 1980 United Nations Convention, 4th ed. (The Hague: Kluwer International, 2009), 617.

10Id.

11Id.

12John Honnold, Documentary History of the Uniform Law for International Sales (The Hague: Kluwer, 1989), 185.

13Hans Stoll in Commentary on the UN Convention on the International Sale of Goods, 2nd ed. (ed. Peter Schlechtriem, trans. Geoffrey Thomas) (Oxford: Clarendon, 1998), Article 79.

14UNCITRAL Yearbook VIII: 1977 (1978); A/CN.9/SER.A/1977; E.78.V.7, pp. 56–7, paras. 432–57.

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Group, debate focused on other features of the draft article; no delegate at any stage of the proceedings called for reconsideration of the use of the word “impediment.” In any event, it seems clear that the use of the word “impediment” was not controversial.

Although there is no evidence in the travaux preparatoires´ to support the proposition, it seems likely that the word “impediment” was deliberately chosen for Article 79 with the intention of finding a concept that was not used in any country’s domestic law, in the hope that a new jurisprudence would grow up to give shape to the new excuse principle. Commentators have repeatedly stressed the need to give Article 79 an “autonomous” interpretation, one that is not shaped by national law concepts such as frustration, force majeure, eccesiva onerosita` sopravvenuta, or Wegfall der Geschaftsgrundlage¨.15 As a purely textual matter, that is obviously correct. Predictably, however, it has not always happened. Professor Flechtner has written that Article 79 provides the “perfect environment for the homeward trend” biased interpretation because the Article’s “non-specific and plastic norms” enable the interpreter to “project his or her subconscious assumptions and predilections” drawn from domestic law.16 It will be argued in this chapter that not even those who advocate an autonomous reading of Article 79 have given sufficient attention to the words of the text, inappropriately reading the latter part of the Article as being synonymous with a foreseeability test.

Perhaps the most controversial issue is whether the word “impediment” in Article 79 includes hardship. The CISG Advisory Council has stated that it does (or should),17 and Belgium’s Hof van Cassatie so held in Scaform International BV v. Lorraine Tubes S.A.S.,18 a decision that will be discussed further later. Purely as a matter of language, although the word “impediment” can be used to mean something that actually prevents or prohibits progress, it is more commonly used to mean something that merely impedes progress or makes it more difficult. The Latin word impedimenta referred to the baggage of an army, something that slowed but did not prevent its progress. Hardship is a matter of difficulty in performing, not actual prevention of performance. There seems to be good reason to accept that hardship can be an “impediment” for purposes of Article 79, particularly given the imprimatur the CISG Advisory Council has given to that idea.19 Nevertheless, the more expansive interpretation of the word is radically undercut by the requirement that the “impediment” be such that the party seeking relief could not

15Ingeborg Schwenzer, “Force Majeure and Hardship in International Sales Contracts,” 39 Victoria University of Wellington L. Rev. 709 (2009) (no gap in CISG, so no basis for consulting national law); Michael Bridge, “The Bifocal World of International Sales: Vienna and Non-Vienna,” in Making Commercial Law: Essays in Honour of Roy Goode (ed. Ross Cranston) (Oxford: Oxford University Press, 1997), 288. Occasionally, courts echo that sentiment, regarding their domestic law as being displaced by the text of Article 79. See, e.g., LG Aachen, No. 43 O 136/92 (May 14, 1993) (Electronic hearing aids case), available at http://cisgw3.law.pace.edu/cases/930514g1.html; OLG Brandenberg, No. 6 U 53/07 (November 18, 2008) (Beer case), available at http://cisgw3.law.pace.edu/cases/081118g1.html; Nuova Fucinati v. Fondmetall International, Tribunale Civile di Monza (January 14, 1993), available at http://cisgw3.law.pace

.edu/cases/930114i3.html.

16Harry M. Flechtner, “Article 79 of the United Nations Convention on Contracts for the International Sale of Goods (CISG) as Rorschach Test: The Homeward Trend and Exemption for Delivering NonConforming Goods,” 19 Pace International L.J. 29, 32 (2007).

17CISG-AC Opinion No. 7, Exemption of Liability for Damages under Article 79 of the CISG (Rapporteur: Alejandro Garro), Opinion 3.1.

18Hof van Cassatie, No. C.07.0289N, June 19, 2009, available at http://cisgw3.law.pace.edu/cases/090619b1. html.

19See supra note 17.

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reasonably be expected to have taken it into account at the time the contract was made. This is particularly true if the relevant hardship is the result of a market-wide change in conditions.

III. Change of Circumstances and Tacit Assumptions

Relief in the event of changed circumstances is typically justified by the idea that one or both of the contracting parties tacitly assumed that a particular set of circumstances would continue to exist, and that their promises were conditional on the continued existence of those circumstances.20 Article 79 invites the court or arbitrator to inquire as to whether that tacit assumption was reasonable, or whether the party now seeking relief could reasonably have been expected to take the relevant change of circumstances into account. Unless this is to be an exercise in intuition, the court or arbitrator should presumably consider what similarly situated parties would assume and how they would act. A tacit assumption that any market will remain stable seems unreasonable on its face, depending on the length of time between contracting and the end of contractual performance.21 The very existence of hedging, insurance, futures markets, and forward sales agreements suggests that at least some similarly situated parties do indeed routinely take into account the possibility of a change in prices.

The Belgian case Scaform International BV v. Lorraine Tubes S.A.S.22 provides an illustration. A French seller agreed to sell steel tubes to a Dutch buyer for delivery in Belgium. After the contract was made but before delivery was due, the price of steel rose by 70%. The Hof van Cassatie described the price rise as “unforeseeable” and held that the seller was relieved of its obligation to deliver the tubes on the basis of the originally agreed terms. This result is startling and has already been much criticized.23 Would any reasonable seller of steel products really regard a rise in the price of steel as unforeseeable? The price of raw materials fluctuates, sometimes widely. The price of a barrel of crude oil was 145.29 USD on July 4, 2008; by December 26, 2008, it was 37.71 USD.24 Steel is no exception. The market price of steel is quite volatile. The CRU Steel Price Index measures the price of steel in specified markets, using the price of steel in April 1994 as the benchmark of 100. Between February 1, 2002, and May 24, 2002, the European steel prices index rose from 82.30 to 98.23, a rise of 19.35% in just four months.25 That occurred just two years before the French seller in Scaform informed its buyer that the agreed price for the steel tubes would have to be changed because the price of steel had gone up. In sum, sudden changes in the price of steel in the European market were not unusual at the time of contract formation.

20James Gordley, “Impossibility and Changed and Unforeseen Circumstances,” 52 American J. of Comparative L. 513 (2004) traces the history of this explanation.

21See, e.g., Karl Wendt Farm Equipment Co. v. International Harvester Co., 931 F.2d 1112 (6th Cir. 1991).

22See supra note 18.

23See, e.g., Harry M. Flechtner, “The Exemption Provisions of the Sales Convention, Including Comments on the ‘Hardship’ Doctrine and the 19 June 2009 Decision of the Belgian Cassation Court,” 59(3) Belgrade L. Rev. 84 (2010).

24“Crude Oil Price History: A Sampled History of Crude Oil Prices at the New York Mercantile Exchange from 2006 to the Present,” available at http://www.nyse.tv/crude-oil-price-history.htm.

25The CRU European Steel Price Index can be viewed at www.cruonline.crugroup.com.

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One response might be that although a change in the price of steel might be foreseeable, a change of the magnitude of 70% was not. (It should be noted, for what it is worth, that the CRU Steel Price Index shows a sharp rise of prices in 2004 but nothing like the 70% rise accepted by all parties in the Scaform case. The discussion here takes the court’s findings as read, as it must.) This raises the question of whether it is sufficient that the kind of change in circumstances should have been taken into account, or whether it is necessary that the exact change in circumstances should have been taken into account. That issue was raised by the Norwegian delegation in Vienna, which argued for Article 79 to be amended so that it would refer to an impediment “of the kind which” the party seeking relief could not reasonably be expected to have taken into account. The delegation

considered that it might be doubtful whether a party could foresee all the details of an impediment but he should be able to foresee the kind of impediment likely to arise. For example, he could reasonably be expected to foresee difficulties arising from general climatic conditions, but he could not anticipate the exact time and place of a particular thunderstorm.26

The proposed Norwegian amendment was not adopted, on the rather vague basis that: “It should be left to the courts to consider whether a particular concrete impediment should have been foreseeable or not.”27 But, importantly, Article 79 does not use the word “foreseeable.” If there is indeed to be an autonomous CISG-specific interpretation without reference to national law concepts,28 it might start by using the actual words in Article 79, rather than by assuming that they are equivalent to a concept of foreseeability used in national laws. The concept of foreseeability is explicitly used in CISG Articles 25 and 74; it is not used in Article 79. Ordinary principles of statutory interpretation suggest that therefore a different inquiry is called for, given that Article 79 uses different words. Article 79 asks whether an impediment should have been “taken . . . into account at the time of the conclusion of the contract.” A price rise in raw materials of 70% might not be foreseeable, but any possible price rise can be taken into account in the same way. Any reasonable seller of steel products should take into account the possibility of a rise in steel prices. If it does, it can do one of three things: (1) it can bargain for a price escalation clause; (2) it can hedge against the possibility of a price increase by entering into a forward contract with its supplier, or by participating in a futures market, or by some other means of hedging the rise of a price increase; or (3) it can elect to take the risk of future price rises. If the French seller in Scaform had “taken into account” the possibility of a price rise by taking option (1) or (2), it would have been protected against the consequences of the rise in the price of steel, no matter what its magnitude. In fact, the court of first instance in the Scaform case noted that the seller did have a price escalation clause in its general conditions of contract, but it had not used those general conditions with this customer, the contracts being made by the seller accepting and returning the buyer’s purchase order.29 Thus, the type of impediment was not only

26 Summary Records of Meetings of the First Committee, 27th meeting, Friday, March 28, 1980, A/CONF.97/C.1/L.191/Rev.1.

27Id.

28See supra note 15.

29Rechtbank van Koophandel Tongeren, No. A.R. A/04/01960, January 25, 2005, available at http://cisgw3. law.pace.edu/cases/050125b1.html.

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foreseeable, it had been foreseen, and the seller could have taken it into account when making the contract simply by using its own general conditions of contract.

Timing is in itself an economic decision when dealing in fluctuating markets.30 The French seller in Scaform sold steel tubes early at a low price and then apparently bought its raw materials late at a high price. The strategy of selling the product early and buying the raw materials late would show good returns in a falling market for raw materials, and the French seller presumably adopted it deliberately. Why, then, should it be given relief under Article 79 when its strategy turned out to be unwise? The consequence of the court’s decision was that the Dutch buyer, which made what turned out to be a good bargain, was forced to buy steel tubes at a much higher price, either by renegotiating with the French seller, or by making a cover purchase from another provider. The Dutch buyer alleged that it had made fixed-price agreements with its downstream customers based on the price that it had agreed to with the French seller, but the Rechtbank van Koophandel Tongeren (the court of first instance) regarded the buyer’s claim as unproven.31 If the Dutch buyer had indeed made fixed-price downstream contracts, then the French seller’s loss was actually passed on to the buyer, which was forced unwillingly into the same posture of having sold early at a low price but being forced by the court’s decision to buy late at a high price. Even if the Dutch buyer had not contracted with its customers on the basis of the price that it had agreed to pay the French seller, it was still forced to pay more for its steel tubes. Relief for changed circumstances is a zero-sum game: the seller is relieved of a bad bargain only because the buyer is deprived of a good bargain. The same is true if the increase in market prices affects the finished product rather than the raw materials needed to make it – i.e., if the seller already has the finished product in its inventory or if the seller’s production costs are otherwise stable, and if the seller has promised to sell the product to the buyer at an agreed price in the future, but before performance is due, the price of the product increases dramatically. In such a case, the seller’s “loss” is its inability to make a larger profit in the higher market now prevailing. Again, if the seller were relieved of its obligation to sell at the agreed price, the buyer would have to make a cover purchase at a higher price, thereby depriving it of the good bargain it made on a forward contract.32

The analysis remains the same if the change in circumstances affects the buyer, rather than the seller, but with one small variation concerning mitigation and CISG Article 77. If the buyer’s local currency devalues dramatically against the contract currency between the time of contracting and the time of performance, causing great hardship to the buyer, can it really be said that no reasonable buyer would have taken that possibility into account when making the contract? The existence of the Euro has eradicated currency fluctuation risks for international but intra-Eurozone sales, but the possibility of currency movement is an everyday risk in other international sales. The buyer can take it into account either by bargaining for a price modification clause or by hedging against future currency movements.33 The difference between this situation and that of the buyer

30Victor P. Goldberg, “Excuse Doctrine: The Eisenberg Uncertainty Principle,” 2 J. of Legal Analysis 359, 371 (2010).

31See supra note 29.

32See, e.g., the Sunflower seed case, Efetio Lamias, Case No. 63/2006, available at http://cisgw3.law.pace. edu/cases/060001gr.html, discussed below in the text accompanying notes 53 and 54.

33See, e.g., Arbitral Award No. 11/96 of the Bulgarian Chamber of Commerce and Industry, UNILEX Case No. 42, abstract available at http://www.unilex.info/case.cfm?pid=1&do=case&id=420&step=Abstract (no Article 79 relief for buyer affected by revaluation of currency of payment and change in market price).

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forced to cover at a higher price is that the seller may still be able to make a cover sale at the original contract price to a different buyer if the currency fluctuation affects only the original buyer’s country. For example, if a Mexican buyer would suffer great hardship as a result of a sudden devaluation of the Mexican peso against the American dollar, the American seller may still be able to sell its product at the original price to a buyer in a country other than Mexico with a stable exchange rate against the U.S. dollar. The duty to mitigate in Article 77 would require it to make reasonable efforts to do so. The seller’s loss would then be confined to the additional transaction costs involved in finding the substitute buyer. It seems far better to use this analysis of buyer’s breach and seller’s duty to mitigate than to relieve the buyer from liability altogether under Article 79 because of the buyer’s failure to take into account an everyday risk.

Similarly, there should be no relief to a buyer because the market price of the product has gone down drastically between the time of contracting and the time of performance. The buyer took this risk when making a forward contract.34 If the buyer were to be granted relief under Article 79, the seller would be forced to make a cover sale at the new, low, market price. The zero-sum game would transfer the loss from the buyer to the seller, who made what turned out to be a good bargain.

IV. Foreseeability versus “Taken into Account”

As noted earlier, unlike other CISG articles, Article 79 does not use the language of foreseeability. Although consideration of changed circumstances often uses the language of foreseeability, the ultimate question under Article 79 should not be whether the impediment was foreseeable, but whether it was one that a reasonable person would have taken into account when making the contract. This is particularly true if we are to strive wherever possible for an autonomous interpretation of CISG provisions. This point may seem at first to be semantic quibbling; one can only take a possibility into account if one can foresee that it might happen. Nevertheless, there is a difference between foreseeing a possibility and taking it into account. Taking it into account involves considering what might be done to guard against the foreseen possibility and then deciding whether or not to take that action. That is why most of the events listed in a standard force majeure clause should fall outside the operation of Article 79, because it would be reasonable to expect that they could have been protected against by use of a standard force majeure clause. Inclusion of a force majeure clause is a simple and cost-free precaution that is unlikely to affect the bargained-for price because it may operate for the benefit of either of the parties, depending on what happens.35 One can reasonably expect any foreseeable force majeure event to be taken into account when the contract is made, simply by including a force majeure clause. However, it should be noted that standard form force majeure clauses do not usually include major market changes in their list of force majeure

34See, e.g., Vital Berry Marketing, N.V. v. Dira-Frost, N.V., Rechtbank van Koophandel, Hasselt, Case No. AR 1849/95, May 2nd, 1995, UNILEX Case 263, abstract available at http://www.unilex.info/case. cfm?pid=1&do=case&id=263&step=Abstract (Article 79 relief denied to buyer of frozen raspberries after significant drop in world market price).

35Larry A. DiMatteo, “Strategic Contracting: Contract Law as a Source of Competitive Advantage,” 47 American Business L.J. 727, 761–2 (2010); Jennifer Bund, “Force Majeure Clauses: Drafting Advice for the CISG Practitioner,” 17 J. of L. & Commerce 381 (1998).