ElectronicjournalofcomparativELaw,vol.8.1(march2004),http://www.ejclorg THE LIMITS OF THE DUTY TO PERFORMIN THE PRINCIPLES OF EUROPEAN CONTRACT LAW Richard Backhaus Readers are reminded that this work is protected by copyright. While they are free to use the ideas expressed in it, they may not copy, distribute or publish the work or part of it, in any form, printed, electronic or otherwise, except for reasonable quoting clearly indicating the ource. Readers are permitted to make copies, electronically or printed, for personal and classroom use Abstract The Principles of European Contract Law(PECL) contain two Articles limiting the duty to perform if performance has become more burdensome. On the one hand, Article 6: 1 11 PECL, Change of Circumstances,, is based on the idea of a clausula rebus sic stantibus and may lead to an adaptation of the contract by the court. On the other hand, it is article 8: 108 PECL, Excuse Due to an Imped iment, excusing non-performance without giving the court the power to adapt the contract. This article analyses the scope of the provisions and their relationship critically, and investigates whether such a dichotomy, i.e. two rules limiting the duty to perform with probably different results, is desirable in a future European private law The author takes a comparative approach by looking at the sole concept of frustration in English and scots law on the one hand and a similar division in german law on the other Contents A. Introduction B. Article 8: 108: Excuse Due to an impediment B I Prerequisites B. I Results B. l English la: Frustration B IV German lanv: Impossibility C. Article 6: 111: Change of Circumstances C I Prerequisites C. I Results C III English law Frustration again CIV German law: Storung der Geschaftsgrund lage and impossibility Richard Backhaus Dipl iur(Bonn), LL M(Edin), research assistant at the Institute of Roman and Comparative Law, Bonn University
Electronic Journal of Comparative Law, vol. 8.1 (March 2004), 1 THE LIMITS OF THE DUTY TO PERFORM IN THE PRINCIPLES OF EUROPEAN CONTRACT LAW Richard Backhaus1 Readers are reminded that this work is protected by copyright. While they are free to use the ideas expressed in it, they may not copy, distribute or publish the work or part of it, in any form, printed, electronic or otherwise, except for reasonable quoting, clearly indicating the source. Readers are permitted to make copies, electronically or printed, for personal and classroom use. Abstract The Principles of European Contract Law (PECL) contain two Articles limiting the duty to perform if performance has become more burdensome. On the one hand, Article 6:111 PECL, ‘Change of Circumstances’, is based on the idea of a clausula rebus sic stantibus and may lead to an adaptation of the contract by the court. On the other hand, it is Article 8:108 PECL, ‘Excuse Due to an Impediment’, excusing non-performance without giving the court the power to adapt the contract. This article analyses the scope of the provisions and their relationship critically, and investigates whether such a dichotomy, i.e. two rules limiting the duty to perform with probably different results, is desirable in a future European private law. The author takes a comparative approach by looking at the sole concept of frustration in English and Scots Law on the one hand and a similar division in German law on the other. Contents A. Introduction B. Article 8:108: ‘Excuse Due to an Impediment’ B.I Prerequisites B.II Results B.III English law: Frustration B.IV German law: Impossibility C. Article 6:111: ‘Change of Circumstances’ C.I Prerequisites C.II Results C.III English law: Frustration again C.IV German law: Störung der Geschäftsgrundlage and impossibility 1 Richard Backhaus Dipl iur (Bonn), LL M (Edin), research assistant at the Institute of Roman and Comparative Law, Bonn University
ElectronicjournalofcomparatiVeLaw,vol.8.1(march2004),<http://www.ejclorg/ D. The relationship between Article 6: 1 11 and Article 8: 108 PECL E Conclusion A. Introduction The Principles of European Contract Law(henceforth PECL)contain two provisions dealing with the situation that the performance of the debtors obligation becomes or is more onerous than expected by the parties at the time they entered into the contract. However, the result of the application of Article 6: 1 11 and Article 8: 108 PECL may be entirely different, lead adaptation of the contract by the court and excuse for the non-performance respectively ngto Although this attempt of drafting a European contract code has provoked much literature in general, there are hardly any writings on the limits of the duty to perform in the principles Thus, the following sections analyse the provision's preconditions, their relationship as well as the borderline between the two The ad ditional aim of this article is to discover similarities and differences between the PECL's statutory provisions and English and German law. These two national systems suit our task because they may stand for the d ifferent approaches to the issue While english law deals with situations we are interested in by means of the doctrine of frustration, 6 German law has, like PECL, two distinct concepts of impossibility?and change of circumstances (2000 Some exceptions are constituted predom inantly by the German debate on the reform of the law of obligations: W Emst, "Die Verpflichtung zur Leistung in den Principles of European Contract Lawund in den und deutsches recht(2000), 129; N NFischer, Die Unmoglichkeit der Leistung im internationalen Kauf-und Vertragsrecht(2001); D P Flambouras, The Doctrines of Impossibility of Performance and clausula rebus sic stantibus in the 1980 Vienna Convention on Contracts for the International Sale of Goods and the Principles of European Contract Law. A Comparative Analysis, 13(2001) Pace International Law Review 261; U Huber Das geplante Recht der Leistungsstorungen,, in WErnst, R Zimmermann(eds), Zivilrechtswissenschaft und Schuldrechtsreform(2001), 31 For a comparison between English and (unreformed)German law, cf recently G Hammer, Frustration of Contract, Unmoglichkeit und Wegfall der Geschaftsgrundlage. Ein Vergleich der losungsansatze englischer und deutscher Rechtsprechung(2001) Cf for an extensive treatment E McKendrick, Force Majeure and Frustration of contract, 2nd edn ( 1995) G H Treitel, Frustration and Force Majeure(1994) $275(1)(3)BGB; the only -however, concise-discussion of those in English so far is R Zimmermann. "Remedies for Non-Performance: The Revised German law of obligations viewed a ga inst the Background of the Principles of European Contract Law,, 6(2002) Edinburgh LR 273, 280ff; cf also idem Breach of Contract and Remedies under the New German Law of Obligations, Saggi, conferenze e sem inari 48 /publications/zimmermann.pdf, 1 1ff
Electronic Journal of Comparative Law, vol. 8.1 (March 2004), 2 D. The relationship between Article 6:111 and Article 8:108 PECL E. Conclusion A. Introduction The Principles of European Contract Law (henceforth PECL)2 contain two provisions dealing with the situation that the performance of the debtor’s obligation becomes or is more onerous than expected by the parties at the time they entered into the contract. However, the result of the application of Article 6:111 and Article 8:108 PECL3 may be entirely different, leading to adaptation of the contract by the court and excuse for the non-performance respectively. Although this attempt of drafting a European contract code has provoked much literature in general, there are hardly any writings on the limits of the duty to perform in the principles.4 Thus, the following sections analyse the provision’s preconditions, their relationship as well as the borderline between the two. The additional aim of this article is to discover similarities and differences between the PECL’s statutory provisions and English and German law.5 These two national systems suit our task because they may stand for the different approaches to the issue. While English law deals with situations we are interested in by means of the doctrine of frustration,6 German law has, like PECL, two distinct concepts of impossibility7 and change of circumstances 2 O Lando/H Beale (eds), Principles of European Contract Law, Parts I and II, combined and revised (2000). 3 All Articles referred to are those of the PECL unless stated otherwise. 4 Some exceptions are constituted predominantly by the German debate on the reform of the law of obligations: W Ernst, ‘Die Verpflichtung zur Leistung in den Principles of European Contract Law und in den Principles of International Commercial Contracts’, in J Basedow (ed), Europäische Vertragsvereinheitlichung und deutsches Recht (2000), 129; N N Fischer, Die Unmöglichkeit der Leistung im internationalen Kauf- und Vertragsrecht (2001); D P Flambouras, ‘The Doctrines of Impossibility of Performance and clausula rebus sic stantibusin the 1980 Vienna Convention on Contracts for the International Sale of Goods and the Principles of European Contract Law: A Comparative Analysis’, 13 (2001) Pace International Law Review 261; U Huber, ‘Das geplante Recht der Leistungsstörungen’, in W Ernst, R Zimmermann (eds), Zivilrechtswissenschaft und Schuldrechtsreform (2001), 31. 5 For a comparison between English and (unreformed) German law, cf recently G Hammer, Frustration of Contract, Unmöglichkeit und Wegfall der Geschäftsgrundlage. Ein Vergleich der Lösun gsansätze englischer und deutscher Rechtsprechung (2001). 6 Cf for an extensive treatment E McKendrick, Force Majeure and Frustration of Contract, 2nd edn (1995); G H Treitel, Frustration and Force Majeure (1994). 7 § 275 (1)-(3) BGB; the only - however, concise - discussion of those in English so far is R Zimmermann, ‘Remedies for Non-Performance: The Revised German Law of Obligations Viewed against the Background of the Principles of European Contract Law’, 6 (2002) Edinburgh LR 273, 280ff; cf also idem, ‘Breach of Contract and Remedies under the New German Law of Obligations’, Saggi, conferenze e seminari 48 (2000) , 11ff
ElectronicjournalofcomparatIveLaw,vol.8.1(march2004), (Storung der Geschafisgrundlage) and is- with regard to our issue - the most recently reformed Our comparison is a special one because it compares national legal rules and concepts, rules which are applied and have been applied over years, i.e. hard law, with a newly developed'soft law, which does not govern contracts unless the parties agree on it. Even though the rules differ totally from each other as regards legal nature, the comparison makes much sense. PECL is recognized as a kind of model code for European contract law, serving th the unification and modernisation of domestic contract law In add ition the summarise a common core of European contract law and thus have some similarity with the US Restatements. This common core' may, however, follow a national solution or may constitute a compromise; at least it should achieve results similar to the major legal systems and thus it has to take into account similar if not the same aspects B. Article 8: 108: 'Excuse Due to an Impediment' The first provision in the PECL capable of granting relief in the case of burdensome performance is Article 8: 108, which was drafted after Article 79 CISG. The underlying idea in the PECl is that the debtor is strictly liable for non-performance like in English law, i.e the debtor is liable as long as he is not able to show that his non-performance is excused whereas German law generally requires fault for any liability BI Prerequisites The provision only applies to imped iments subsequent to the conclusion of the contract 10 from French law 12 The non-performance is excused according to paragraph (I)on fou tes The whole situation must be one commonly described as force majeure, which origin conditions Firstly, there must be an impediment. Imped iment is not defined in the PECL themselves nor in their commentary. The examples given include a ship's sinking and a $313(1)3)BGB; it is probably better known under the old terminology of wegfall der Geschafisgrundlage; cf for the concept accord ingto the old law w Lorenz, Contract Modification asa Result of Change of Circumstances,, in R Zimmermann, S Whittaker(eds), Good Faith in European Contract Lau 2000), 357; K Zweigert, H Kotz, Introduction to Comparative Law, 3rd edn(1998), 518ff. Yet the legislator's aim was not to change the existing status of the doctrine; BT-Drucks 14/6040 <http:/dinbundestagde/btd/14060/1406040ndt,175f 9 In theory, the US Restatements rathersummarise the law as it is today, whereas PECL's aim is rather unification-ie. the future development of contract law -than restating current status. Yet the differences should not be overestimated; cfR Zimmermann, Konturen eines Europa ischen Vertragsrechts,(1995) Juristenzeitung 477, 478f Lando/ Beale, n 2, 379(comment B), a previously existing impediment is dealt with in Art 4: 103 Fundamental mistake as to Facts or la Lando/Beale, n, 379f(comment C) For force majeure, cf B Nicholas, "Force Majeure in French Law, in McKendrick(ed), n, 21
Electronic Journal of Comparative Law, vol. 8.1 (March 2004), 3 (Störung der Geschäftsgrundlage),8 and is - with regard to our issue - the most recently reformed. Our comparison is a special one because it compares national legal rules and concepts, rules which are applied and have been applied over years, i.e. ‘hard law’, with a newly developed ‘soft law’, which does not govern contracts unless the parties agree on it. Even though the rules differ totally from each other as regards legal nature, the comparison makes much sense. PECL is recognized as a kind of model code for European contract law, serving both the unification and modernisation of domestic contract law. In addition, the principles summarise a ‘common core’ of European contract law and thus have some similarity with the US Restatements.9 This ‘common core’ may, however, follow a national solution or may constitute a compromise; at least it should achieve results similar to the major legal systems, and thus it has to take into account similar if not the same aspects. B. Article 8:108: ‘Excuse Due to an Impediment’ The first provision in the PECL capable of granting relief in the case of burdensome performance is Article 8:108, which was drafted after Article 79 CISG. The underlying idea in the PECL is that the debtor is strictly liable for non-performance like in English law, i.e. the debtor is liable as long as he is not able to show that his non-performance is excused, whereas German law generally requires fault for any liability. B.I Prerequisites The provision only applies to impediments subsequent to the conclusion of the contract.10 The whole situation must be one commonly described as force majeure, 11 which originates from French law.12 The non-performance is excused according to paragraph (1) on four conditions. Firstly, there must be an impediment. Impediment is not defined in the PECL themselves nor in their commentary. The examples given include a ship’s sinking and a 8 § 313 (1)-(3) BGB; it is probably better known under the old terminology of Wegfall der Geschäftsgrundlage; cf for the concept according to the old law W Lorenz, ‘Contract Modification as a Result of Change of Circumstances’, in R Zimmermann, S Whittaker (eds), Good Faith in European Contract Law (2000), 357; K Zweigert, H Kötz, Introduction to Comparative Law, 3rd edn (1998), 518ff. Yet the legislator’s aim was not to change the existing status of the doctrine; BT-Drucks 14/6040 , 175f. 9 In theory, the US Restatements rather summarise the law as it is today, whereas PECL’s aim is rather unification - i.e. the future development of contract law - than restating a current status. Yet the differences should not be overestimated; cf R Zimmermann, ‘Konturen eines Europäischen Vertragsrechts’, (1995) Juristenzeitung 477, 478f. 10 Lando/Beale, n 2, 379 (comment B); a previously existing impediment is dealt with in Art 4:103, ‘Fundamental Mistake as to Facts or Law’. 11 Lando/Beale, n , 379f (comment C). 12 For force majeure, cf B Nicholas, ‘Force Majeure in French Law’, in McKendrick (ed), n , 21
ElectronicjournalofcomparatIveLaw,vol.8.1(march2004), buyer's insolvency. 3 However, the latter is not beyond the control of the party and does not excuse non-performance. According to these examples, "impediment can be described as impossibility, 4 which is no unambiguous term either. There are still obligations that are impossible to perform physically, but technical progress enables us to manage tasks thought to be impossible before Given economic power, time and resources only small ground remains for objective impossibility. Yet, as the reference to bankruptcy shows, it is not an objective but a subjective assessment of impossibility. One has to examine whether the actual debtor can perform or not But this impossibility only covers cases of true impossibility, the commentary limits the application of Article 8: 108 to cases where an imped iment prevents performance'15 and expressly excludes excessively onerous performance. Even an immediate and unexpected price increase of several hundreds of per cent is therefore irrelevant for Article 8: 108. It thus reasonably clarifies the PECL's position on an issue that is highly controversial for Article 8: 108s antetype, Article 79(1)of the CISG. 6 Secondly, the impediment must have been beyond the debtors control. Beyond the parties' control means that the obstacle must be something outside the debtor's sphere of control'7 Force majeure must have come about through no fault of the debtor. 8 For the latter case, the PECLs commentary refers to a delayed performance in order to illustrate this requirement. The reference to any form of culpa in this context illustrates that it is often difficult to distinguish between force majeure and absence of fault. 9 In many cases, the answer to the question whether the obstacle was external and whether the debtor was at fault will coincide. But both limitations are distinct and vary in scope While for external ity it is necessary that it does not fall into a specified/standard sphere of responsibility, 20 fault may Lando/ Bea le, n 2, 379(comment B) Lando/Bea le, n, 324(comment A), although this is stated in the commentary to Art 6: 1 11: Change of Circumstances 15 Lando/Beale, n2, 379(comment A) CfH Stoll, in P Schlechtriem (ed), Kommentar=um Einheitlichen UN-Kaufrecht. Das Ubereinkommen der Vereinten Nationen iber Vertrage iber den internationalen Warenkauf, CISG, 3 d edn(2000), Art 79 CISG paras 39, 40; D Tallon, in C Bianca, M Bonell(eds), Commentary on the International Sales Law: The 1980 Vienna sales Convention(1987),Art 79 para 3.1; A H Hudson, Exemptions and Impossibility under the vienna Convention, in McKendrick(ed), n 6, 267, 276f, Fischer, n 4, 194ff with extensive references Lando/Beale, n 2, 380(comment A(). It appears to be the same test as the extemality test in French law. cf Nicholas n 12.24 Lando/Beale, n2, 380(comment A(), lim its the application to the absence of fault of either party The only sensible solution is that the party at fault must be barred from being freed from liability, for it is not obvious why the innocent party should be prejudiced by culpable behaviour by the oblige Cf for the relationship between force majeure and culpa Cass Civ, 9 March 1994, Bull Civ 1.91(partly translated in H Beale et al(eds), Cases, Materials and Texts on Contract Law(2002),594f) Cf for Art 79 CISG, Schlechtriem/Stoll, n 16, Art 79 para 20 4
Electronic Journal of Comparative Law, vol. 8.1 (March 2004), 4 buyer’s insolvency.13 However, the latter is not beyond the control of the party and does not excuse non-performance. According to these examples, ‘impediment’ can be described as impossibility,14 which is no unambiguous term either. There are still obligations that are impossible to perform physically, but technical progress enables us to manage tasks thought to be impossible before. Given economic power, time and resources only small ground remains for objective impossibility. Yet, as the reference to bankruptcy shows, it is not an objective but a subjective assessment of impossibility. One has to examine whether the actual debtor can perform or not. But this impossibility only covers cases of ‘true impossibility’; the commentary limits the application of Article 8:108 to cases ‘where an impediment prevents performance’15 and expressly excludes excessively onerous performance. Even an immediate and unexpected price increase of several hundreds of per cent is therefore irrelevant for Article 8:108. It thus reasonably clarifies the PECL’s position on an issue that is highly controversial for Article 8:108’s antetype, Article 79 (1) of the CISG.16 Secondly, the impediment must have been beyond the debtor’s control. Beyond the parties’ control means that the obstacle must be something outside the debtor’s sphere of control.17 Force majeure must have come about through no fault of the debtor.18 For the latter case, the PECL’s commentary refers to a delayed performance in order to illustrate this requirement. The reference to any form of culpa in this context illustrates that it is often difficult to distinguish between force majeure and absence of fault.19 In many cases, the answer to the question whether the obstacle was external and whether the debtor was at fault will coincide. But both limitations are distinct and vary in scope. While for externality it is necessary that it does not fall into a specified/standard sphere of responsibility,20 fault may 13 Lando/Beale, n 2, 379 (comment B). 14 Lando/Beale, n , 324 (comment A), although this is stated in the commentary to Art 6:111: ‘Change of Circumstances’. 15 Lando/Beale, n 2, 379 (comment A). 16 Cf H Stoll, in P Schlechtriem (ed), Kommentar zum Einheitlichen UN-Kaufrecht. Das Übereinkommen der Vereinten Nationen über Verträge über den internationalen Warenkauf, CISG, 3rd edn (2000), Art 79 CISG paras 39, 40; D Tallon, in C Bianca, M Bonell (eds), Commentary on the International Sales Law: The 1980 Vienna Sales Convention (1987), Art 79 para 3.1; A H Hudson, ‘Exemptions and Impossibility under the Vienna Convention’, in McKendrick (ed), n 6, 267, 276f; Fischer, n 4, 194ff with extensive references. 17 Lando/Beale, n 2, 380 (comment A(i)). It appears to be the same test as the externality test in French law; cf Nicholas, n 12, 24. 18 Lando/Beale, n 2, 380 (comment A(i)), limits the application to the absence of ‘fault of either party’. The only sensible solution is that the party at fault must be barred from being freed from liability, for it is not obvious why the innocent party should be prejudiced by culpable behaviour by the obligee. 19 Cf for the relationship between force majeure and culpa Cass Civ, 9 March 1994, Bull Civ I.91 (partly translated in H Beale et al (eds), Cases, Materials and Texts on Contract Law (2002), 594f). 20 Cf for Art 79 CISG, Schlechtriem/Stoll, n 16, Art 79 para 20
ElectronicjournalofcomparatiVeLaw,vol.8.1(march2004), occur even beyond those borders. 2I The illustration of the risk sphere, however, must not be taken literally. It is also beyond a debtor's control if the debtor's factory is destroyed by a terrorist attack, 22 even if the terrorist entered the factory itself. The third requirement is that it could not reasonably have been expected to take the impediment into account at the time of the conclusion of the contract. Either the party should have accepted the risk or have been at fault in not having foreseen it. 3The stand reasonable foreseeability24 jud ged from the perspective of a normal person placed in the same situation. The party should not be too anxious, but if an obstacle is reasonably foreseeable and the debtor nevertheless contracts uncond itionally, he has taken the risk that the Fourth, it is required that it could not reasonably have been expected to have avoided or overcome the impediment or its consequences. The commentary summarises this issue as the impediment being "insurmountable >This prerequisite may be surprising. As the imped iment must be outside the partys control, how could the party have avoided it? The PECL's commentary illustrates: In an earthquake zone the effects of earthquakes can be overcome by special construction techniques, though it would be different in the case of a quake of much greater force than usual. 26 But demand ing an earthquake-resistant construction presupposes that the risk has been foreseen or was foreseeable. In many cases, the prerequisite of a non-foreseeable imped iment steps in. The issue whether an imped iment is insurmountable is hence only rarely relevant. E. g. where the risk was not foreseeable originally -i.e. at the time of the conclusion of the contract -but becomes foreseeable afterwards or where the obligation can be fulfilled in a different way -e.g. in a contract for the delivery of goods that under normal circumstances would be delivered by sea -the imped iment is not irresistible if transfer by air is possible, generally, if there commercially reasonable substitute available. 28 The obligator is required to incur extra Intentional interference by the debtor (unlike culpable action) is not necessarily covered by the standard sphere of responsibility. The delayed performance example provided by the commentary is a special case, because the event that constitutes the impediment may nevertheless be an extermalone. Yet, the fault on the part of the debtor allowed the external event to have its effect on the performance Cf for Art 79 CISG Schlechtriem/Stoll, n 16, Art 79 para 20 Lando/Beale, n 2, 380(comment c(i) Lando/ Beale, n 2, 381(comment c()); cffor Art 79 CISG: Bianca/Bonell/Tallon, n 16, Art 79 para 2.6.3; F Enderlein, F Maskow, D Strohbach(eds), International Sales Law(1992), art 79, para 5.3 Schlechtriem/Stoll, n 16, art 79 para 23 Lando/Beale, n 2, 381(comment c(il)) This illustration is more appropriate for the question of foreseeability. It shows that, although a risk of a specific kind is foreseeable, e.g an earthquake, an earthquake of a strength that could not have been reasonably expected is not foreseeable Nicholas n 12.24 ForArt79Cisg,SecretariatCommentaryArt65,para7ff, Schlechtriem/Stoll, n 16, art 79 para 24
Electronic Journal of Comparative Law, vol. 8.1 (March 2004), 5 occur even beyond those borders.21 The illustration of the risk sphere, however, must not be taken literally. It is also beyond a debtor’s control if the debtor’s factory is destroyed by a terrorist attack,22 even if the terrorist entered the factory itself. The third requirement is that it could not reasonably have been expected to take the impediment into account at the time of the conclusion of the contract. Either the party should have accepted the risk or have been at fault in not having foreseen it.23 The standard is one of reasonable foreseeability24 judged from the perspective of a normal person placed in the same situation. The party should not be too anxious, but if an obstacle is reasonably foreseeable and the debtor nevertheless contracts unconditionally, he has taken the risk that the impediment evolves. Fourth, it is required that it could not reasonably have been expected to have avoided or overcome the impediment or its consequences. The commentary summarises this issue as the impediment being ‘insurmountable’.25 This prerequisite may be surprising. As the impediment must be outside the party’s control, how could the party have avoided it? The PECL’s commentary illustrates: ‘In an earthquake zone the effects of earthquakes can be overcome by special construction techniques, though it would be different in the case of a quake of much greater force than usual.’26 But demanding an earthquake-resistant construction presupposes that the risk has been foreseen or was foreseeable. In many cases, the prerequisite of a non-foreseeable impediment steps in. The issue whether an impediment is insurmountable is hence only rarely relevant. E.g. where the risk was not foreseeable originally - i.e. at the time of the conclusion of the contract - but becomes foreseeable afterwards or where the obligation can be fulfilled in a different way - e.g. in a contract for the delivery of goods that under normal circumstances would be delivered by sea - the impediment is not irresistible if transfer by air is possible;27 generally, if there is a commercially reasonable substitute available.28 The obligator is required to incur extra 21 Intentional interference by the debtor (unlike culpable action) is not necessarily covered by the standard sphere of responsibility. The delayed performance example provided by the commentary is a special case, because the event that constitutes the impediment may nevertheless be an external one. Yet, the fault on the part of the debtor allowed the external event to have its effect on the performance. 22 Cf for Art 79 CISG Schlechtriem/Stoll, n 16, Art 79 para 20. 23 Lando/Beale, n 2, 380 (comment c(ii)). 24 Lando/Beale, n 2, 381 (comment c(ii)); cf for Art 79 CISG: Bianca/Bonell/Tallon, n 16, Art 79 para 2.6.3; F Enderlein, F Maskow, D Strohbach (eds), International Sales Law (1992), art 79, para 5.3; Schlechtriem/Stoll, n 16, art 79 para 23. 25 Lando/Beale, n 2, 381 (comment c(iii)). 26 This illustration is more appropriate for the question of foreseeability. It shows that, although a risk of a specific kind is foreseeable, e.g. an earthquake, an earthquake of a strength that could not have been reasonably expected is not foreseeable. 27 Nicholas, n 12, 24. 28 For Art 79 CISG, Secretariat Commentary, Art 65, para 7ff ; OLG Hamburg, 28 February 1997, CISG Online 261 ; Schlechtriem/Stoll, n 16, art 79 para 24
ElectronicjournalofcomparativELaw,vol.8.1(march2004),http://www.ejclorg expenses in order to ensure performance of the contract Finally, although this is not stated in the article, it seems right to demand -like under the CISG-that the imped iment is caused solely by an event that was neither foreseeable nor insurmountable 29 Taking the facts from the English landmark decision of Taylor v. caldwell plaintiffs and the defendants entered into a contract for the use of the defend s music hall for four concerts in the summer months of June to August. The day before the first concert was to take place the hall burned down. Provided that the supervening event was beyond the debtor's sphere of control, this case would also lead to excuse(at least for the first concert) under article 8: 108 BII Result Whereas Article 79 of the CiSG only provides a defence against an action for damages, I Article 8: 108s result is a wider excuse. Article 8: 101(2) provides that the 'aggrieved party may resort to any of the remedies set out in Chapter 9 except claiming performance and damages,.32 Another difference occurs in the case of delay amounting to fundamental non- performance: while under the PeCl an imped iment terminates the contract automatically Article 9: 303(4), under the CiSg the creditor may choose. 33 The practical d ifferences, however, will be minimal for fundamental non-performance in the case of delay will hardly be claimed by the debtor but by the creditor. The latter will not have any interest in performance. If, e.g., A employs B's big band at a fixed date and time for his anniversary garden party and the big band does not show up, then it is likely that a wants to terminate the contract, whereas B is likely to be able and willing to perform on another day. 34 B III English law: Frustration After the courts in the 17th century upheld contracts as being absolute, 3> the English doctrine of frustration has been developed and may discharge the debtor from liability. Unlike in th PECL and in German law, there are no two distinct concepts for that The classic definit 29 For Art 79 CISG, Bianca/Bonell/Tallon, n 16, Art 79, para 2.6.6; Schlechtriem/Stoll, n 16, Art 79 para 31; of a contrary opinion are Enderlein/Maskow/Strohbach, n 24, Art 79, para 3.4 Taylor v Caldwell(1863)3B& s826; cf the detailed discussion by Treitel, n 6, paras 2-024ff Cf Art 79(5)CISG For the relationship between the right to demand specific performance and Art 79 CISG, cf Schlechtriem/Stoll, n 16, Art. 79 paras 55ff Cf also Flam bouras n 4. 284 situaton. This is of course no Sale of Goods example; it only serves to illustrate the parties'interests in such Paradine v Jane(1647) Aleyn 26:... when a party by his own contract creates a duty and charge upon himself he is bound to make it good, if he may, not withstand ing any accident by inev ita ble necessity because he might have provided aga inst it by his contract. The history is well narrated in Treitel, n 6, ch 2 6
Electronic Journal of Comparative Law, vol. 8.1 (March 2004), 6 expenses in order to ensure performance of the contract. Finally, although this is not stated in the Article, it seems right to demand - like under the CISG - that the impediment is caused solely by an event that was neither foreseeable nor insurmountable.29 Taking the facts from the English landmark decision of Taylor v. Caldwell, 30 the plaintiffs and the defendants entered into a contract for the use of the defendant’s music hall for four concerts in the summer months of June to August. The day before the first concert was to take place the hall burned down. Provided that the supervening event was beyond the debtor’s sphere of control, this case would also lead to excuse (at least for the first concert) under Article 8:108. B.II Results Whereas Article 79 of the CISG only provides a defence against an action for damages,31 Article 8:108’s result is a wider excuse. Article 8:101(2) provides that the ‘aggrieved party may resort to any of the remedies set out in Chapter 9 except claiming performance and damages’.32 Another difference occurs in the case of delay amounting to fundamental nonperformance: while under the PECL an impediment terminates the contract automatically (Article 9:303(4), under the CISG the creditor may choose.33 The practical differences, however, will be minimal for fundamental non-performance in the case of delay will hardly be claimed by the debtor but by the creditor. The latter will not have any interest in performance. If, e.g., A employs B’s big band at a fixed date and time for his anniversary garden party and the big band does not show up, then it is likely that A wants to terminate the contract, whereas B is likely to be able and willing to perform on another day.34 B.III English law: Frustration After the courts in the 17th century upheld contracts as being absolute,35 the English doctrine of frustration has been developed and may discharge the debtor from liability. Unlike in the PECL and in German law, there are no two distinct concepts for that. The classic definition 29 For Art 79 CISG, Bianca/Bonell/Tallon, n 16, Art 79, para 2.6.6; Schlechtriem/Stoll, n 16, Art 79 para 31; of a contrary opinion are Enderlein/Maskow/Strohbach, n 24, Art 79, para 3.4. 30 Taylor v Caldwell (1863) 3 B & S 826; cf the detailed discussion by Treitel, n 6, paras 2-024ff. 31 Cf Art 79 (5) CISG. 32 For the relationship between the right to demand specific performance and Art 79 CISG, cf Schlechtriem/Stoll, n 16, Art. 79 paras 55ff. 33 Cf also Flambouras, n 4, 284. 34 This is of course no Sale of Goods example; it only serves to illustrate the parties’ interests in such situations. 35 Paradine v Jane (1647) Aleyn 26: ‘. . . when a party by his own contract creates a duty and charge upon himself he is bound to make it good, if he may, not withstanding any accident by inevitable necessity, because he might have provided against it by his contract.’ The history is well narrated in Treitel, n 6, ch 2
ElectronicjournalofcomparatIveLaw,vol.8.1(march2004), of the modern idea of frustration was given by lord Radcliff in Davis Contractors v fareham Urban DC,36 as follows: [F]rustration occurs whenever the law recognizes 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 rad ically different from that which was undertaken by the contract. However, Davis was no case in which the claimant succeeded with the argument of frustration; it has generally been observed that cases of frustrat ion are rare 37 Comparing it to Article 8: 108, frustration seems to be the one with the wider application. Both are only applicable for subsequent obstacles. 38 But the obstacle does not need to amount to an impediment; 9 also delay40 or frustration of purpose+I may amount to al frustration Frustration and Article 8: 108 may accord on the second and third requirements, externality and unforeseeability of the imped iment There are some dicta that the supervening event must be something altogether outside the control of the parties'42 like under the PeCL Thus, fault on the part of the debtor averring frustration generally excludes frustration+3as well as any discharge accord ing to the PECL. This is accepted for intentional actions whereas the law is uncertain if the subsequent event is caused by negligence. 44 It is also [1956 AC 696; National Carriers Ltd v Panalpina((Northern) Ltd [ 1981]AC 675; Pioneer Shipping Ltd v BTP Tioxide Ltd( The Nema'(No 2))[1982 AC 724; for a similar reasoning prior to Davis Contractors cf FA Tamplin Steamship Company v Anglo-Mexican Petroleum Products Company [1916]2 AC 397. Davis Contractors is also cited as an authority in Scotland; HL Mac Queen, J Thomson, Contract Law in Scotland (2000), para 4.100; W WMcBryde, The Law of Contract in Scotland, 2nd edn(2001), para 21-08 E McKendrick, Force Majeure and Frustration: Their Relationship and a Comparative Assessment,in dem,n6,33,42f. Amalgamated Investment Property Co w John Walker& Sons [1977]1 WLR 164(CA); E McKendrick, Contract Law, 4th edn(2000), 301; MacQueen/Thomson, n 36, para 4.91; McBryde, n 36, 21-04 Corp Ltd (1942)AC 154, 163f; Taylor v Caldwell, n 30; cf Treitel, n 6, paras 3-001f ine v Imperial Smelting Kodros Shipping Corporation v Empresa Cubana de flees, The Evia'(No 2))[1982] 1 Lloyds Rep 334(CA), affirmed[1983]1 AC 736 Krell v Henry [1903 2 KB 740(CA), but contrast the same courts decision in Herne Steamboat v Hutton [ 1903]2 KB 740(CA), which is not easily distinguish ble from Krell v Henry, cf discussion in McKendrick, n 38, 306ff. Scots law on this point remains unclear, cf McBryde, n 36, 21-33ff with further references J Lauritsen AS v Wijsmuller Bl(The Super Servant Two)[1989]1 Lloyds Rep 148, 156, affirmed 990]1 Lloyd's Rep 1(CA), in which Bingham LJ stated: The essence of frustration is that it is caused by some unforeseen supervening event over which the parties to the contract have no control and for which they are therefore not responsible. McBryde, n 36, para 21-43 states that" beyond the control the test is describing the law more accurately than referring to externality'and foreseeability 43 McKendrick, n 6, 50f; Treitel, n 6, para 14-001 calls it the preferable view' In Joseph Constantine Steamship Line v Imperial Smelting Corporation, n 39, it was considered obiter hether negligence on the part of the party seeking relief denies the claim of frustration, contrast 166 per
Electronic Journal of Comparative Law, vol. 8.1 (March 2004), 7 of the modern idea of frustration was given by Lord Radcliff in Davis Contractors v Fareham Urban DC, 36 as follows: ‘[F]rustration occurs whenever the law recognizes 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.’ However, Davis was no case in which the claimant succeeded with the argument of frustration; it has generally been observed that cases of frustration are rare.37 Comparing it to Article 8:108, frustration seems to be the one with the wider application. Both are only applicable for subsequent obstacles.38 But the obstacle does not need to amount to an impediment;39 also delay40 or frustration of purpose41 may amount to legal frustration. Frustration and Article 8:108 may accord on the second and third requirements, externality and unforeseeability of the impediment. There are some dicta that the supervening event must be ‘something altogether outside the control of the parties’42 like under the PECL. Thus, fault on the part of the debtor averring frustration generally excludes frustration43 as well as any discharge according to the PECL. This is accepted for intentional actions, whereas the law is uncertain if the subsequent event is caused by negligence.44 It is also 36 [1956] AC 696; National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675; Pioneer Shipping Ltd v BTP Tioxide Ltd (‘The Nema’ (No 2)) [1982] AC 724; for a similar reasoning prior to Davis Contractors cf F A Tamplin Steamship Company v Anglo-Mexican Petroleum Products Company [1916] 2 AC 397. Davis Contractorsis also cited as an authority in Scotland; H L MacQueen, J Thomson, Contract Law in Scotland (2000), para 4.100; W W McBryde, The Law of Contract in Scotland, 2nd edn (2001), para 21-08. 37 E McKendrick, ‘Force Majeure and Frustration: Their Relationship and a Comparative Assessment’, in idem, n 6, 33, 42f. 38 Amalgamated Investment & Property Co v John Walker & Sons [1977] 1 WLR 164 (CA); E McKendrick, Contract Law, 4th edn (2000), 301; MacQueen/Thomson, n 36, para 4.91; McBryde, n 36, 21 -04. 39 But an impediment may frustrate the contract, Joseph Constantine Steamship Line v Imperial Smelting Corp Ltd [1942] AC 154, 163f; Taylor v Caldwell, n 30; cf Treitel, n 6, paras 3-001ff. 40 Kodros Shipping Corporation v Empresa Cubana de Fletes, (‘The Evia’ (No 2)) [1982] 1 Lloyd’s Rep 334 (CA), affirmed [1983] 1 AC 736. 41 Krell v Henry [1903] 2 KB 740 (CA); but contrast the same court’s decision in Herne Steamboat v Hutton [1903] 2 KB 740 (CA), which is not easily distinguishable from Krell v Henry; cf discussion in McKendrick, n 38, 306ff. Scots law on this point remains unclear; cf McBryde, n 36, 21-33ff with further references. 42 J Lauritzen AS v Wijsmuller BV (‘The Super Servant Two’) [1989] 1 Lloyd’s Rep 148, 156, affirmed [1990] 1 Lloyd’s Rep 1 (CA), in which Bingham LJ stated: ‘The essence of frustration is that it is caused by some unforeseen supervening event over which the parties to the contract have no control and for which they are therefore not responsible.’ McBryde, n 36, para 21-43 states that ‘beyond the control’ the test is describing the law more accurately than referring to ‘externality’ and ‘foreseeability’. 43 McKendrick, n 6, 50f; Treitel, n 6, para 14-001 calls it ‘the preferable view’. 44 In Joseph Constantine Steamship Line v Imperial Smelting Corporation, n 39, it was considered obiter whether negligence on the part of the party seeking relief denies the claim of frustration, contrast 166 per
ElectronicjournalofcomparativELaw,vol.8.1(march2004),http://www.ejclorg doubtful whether the frustrating event must have been unforeseeable. 4 A significant difference is that frustration does not require an insurmountable obstacle as the alternative way will often constitute something radically different, 46 The immediate result concurs again: the debtor is freed from performance and any damages for non B IV German law: Impossibility a comparison with the german concept of impossibility only is less fruitful as the effect of an impossible performance under German law is entirely different. It only excludes the general claim for specific performance+7 notwithstand ing fault and foreseeability on the part of the debtor. The question whether the debtor has to pay damages is a matter of fault. The following example may illustrate this. A sold his Volkswagen Golf to B, but the car was destroyed before it was handed over. The destruction of the car only excludes bs claim of performance in forma specifica. With regard to damages, B's claim will only succeed if he can prove that a's culpable behaviour led to the impossibility. 48 Nevertheless we should take a look at the issue when german law considers an obligation to be impossible. 275(1)of the BGB applies to all types of impossibility objective, subjective and initial impossibility 50. Besides the relevance for initial Imped iments it corresponds with the notion in Article 8: 108 of an impediment; particularly excessively onerous performance is not covered.5 However, $$ 275(2)and(3)of the BGB cover changes in the equilibrium as well as cases where performance is owed in persona Viscount Simon LC and 195 per Lord Wright. However, there is Scottish authority: London Edinburgh Shipping Company, Ltd v Lords Commissioners of the Admiralty[1920]SC 309(IH) The classic approach was that unforeseeability was necessary: Walton Harvey Ltd v Walker& Homfrays Ltd [1931] 1 Ch 274(CA); see also post Davis Contractors, National Carriers Ltd v Panalpina (Northern)Ltd, n 37, 700; Paal Wilson Co A/S v Partenreederei Hannah Blumenthal( The Hannah Blumenthal)[1983]1 AC 854, 909. This was questioned in Ocean Tramp Tankers Corps v v0 Sovfracht('The Eugenia[1964 2 QB 226, 239(CA) per Lord Denning, WJ Tatem Ltd v Gamboa [1939]1 KB 132, 137f, McBryde, n 36, para 21-28: Treitel, n 6, para 13-001f 46 Treitel, n 6, para 12-017 Zimmermann, n 7, 286, W Emst, in K Rebmann(ed), Munchener Kommentar zum Buirgerlichen Gesetabuch, 4th edn(2001-),$275 para 3 48 There is some discussion on the question whether the non-performance itself can constitute a breach of contract in the case of impossibility or whether the breach can only be seen in the culpable behaviour. The prevailing view is the former approach; cf Munchener Kommentar/Ernst, n,$280 para llf Yet, subjective impossibility seems to differ from the former$ 275(2)as it demands to overcome some impediments; Munchener Kommentar/Ernst, n 47,$ 275 para 3. This, however, corresponds with Art 8: 108 Cf Zimmermann. n 7. 280f Cf Zimmermann. n. 282 8275(2)BGB; cfZimmermann, n 7, 281ff, and in German the extensive treatment by Munchen Kommentar/Ernst, n 47, $275 paras 69ff. Some remarks on$ 275(2)BGB are made below, last para of C.IV
Electronic Journal of Comparative Law, vol. 8.1 (March 2004), 8 doubtful whether the frustrating event must have been unforeseeable.45 A significant difference is that frustration does not require an insurmountable obstacle as the alternative way will often constitute something ‘radically different’.46 The immediate result concurs again: the debtor is freed from performance and any damages for nonperformance. B.IV German law: Impossibility A comparison with the German concept of impossibility only is less fruitful as the effect of an impossible performance under German law is entirely different. It only excludes the general claim for specific performance47 notwithstanding fault and foreseeability on the part of the debtor. The question whether the debtor has to pay damages is a matter of fault. The following example may illustrate this. A sold his Volkswagen Golf to B, but the car was destroyed before it was handed over. The destruction of the car only excludes B’s claim of performance in forma specifica. With regard to damages, B’s claim will only succeed if he can prove that A’s culpable behaviour led to the impossibility.48 Nevertheless, we should take a look at the issue when German law considers an obligation to be impossible. § 275 (1) of the BGB applies to all types of impossibility: objective, subjective49 and initial impossibility50. Besides the relevance for initial impediments it corresponds with the notion in Article 8:108 of an impediment; particularly excessively onerous performance is not covered.51 However, §§ 275 (2) and (3) of the BGB cover changes in the equilibrium52 as well as cases where performance is owed in persona Viscount Simon LC and 195 per Lord Wright. However, there is Scottish authority: London & Edinburgh Shipping Company, Ltd v Lords Commissioners of the Admiralty [1920] SC 309 (IH). 45 The classic approach was that unforeseeability was necessary: Walton Harvey Ltd v Walker & Homfrays Ltd [1931] 1 Ch 274 (CA); see also post Davis Contractors, National Carriers Ltd v Panalpina (Northern) Ltd, n 37, 700; Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (‘The Hannah Blumenthal’) [1983] 1 AC 854, 909. This was questioned in Ocean Tramp Tankers Corps v V/O Sovfracht (‘The Eugenia’) [1964] 2 QB 226, 239 (CA) per Lord Denning, W J Tatem Ltd v Gamboa [1939] 1 KB 132, 137f; McBryde, n 36, para 21-28; Treitel, n 6, para 13-001f. 46 Treitel, n 6, para 12-017. 47 Zimmermann, n 7, 286; W Ernst, in K Rebmann (ed), Münchener Kommentar zum Bürgerlichen Gesetzbuch, 4th edn (2001-), § 275 para 3. 48 There is some discussion on the question whether the non-performance itself can constitute a breach of contract in the case of impossibility or whether the breach can only be seen in the culpable behaviour. The prevailing view is the former approach; cf Münchener Kommentar/Ernst, n 47, § 280 para 11f. 49 Yet, subjective impossibility seems to differ from the former § 275 (2) as it demands to overcome some impediments; Münchener Kommentar/Ernst, n 47, § 275 para 3. This, however, corresponds with Art 8:108. 50 Cf Zimmermann, n 7, 280f. 51 Cf Zimmermann, n 7, 282. 52 § 275 (2) BGB; cf Zimmermann, n 7, 281ff, and in German the extensive treatment by MünchenerKommentar/Ernst, n 47, § 275 paras 69ff. Some remarks on § 275 (2) BGB are made below, last para of C.IV
ElectronicjournalofcomparativELaw,vol.8.1(march2004),http://www.ejclorg and it is unreasonable to demand it53 C. Article 6: 1ll: Change of Circumstances' Now we shall turn to Article 6: 111. Included in PECL's chapter 6, it is primarily concerned with the contracts' content, but may have an effect similar to Article 8: 108. Its paragraph(1) states the general rule that an obligation is not discharged if its performance becomes more onerous. Hence the underlying principle is still the one of pacta sunt servanda. Paragraph(2) provides an exception to this CI Prerequisites Paragraph(2) is applicable provided four cond itions are satisfied. Firstly, the performance of the contract becomes excessively onerous. 54 Excessively onerous is distinct from an impediment. The performance must be at least ruinous' for the debtor, 5>whereas impossibility presupposes an insurmountable obstacle"56. Thus, extremely onerous means an obstacle of one degree less than impossibility. 57 The commentary tries to illustrate the situation in which a change of circumstances brought about a major imbalance in the contract58 within in the particular economic contexts. The contract must be overturned by events, so that performance will involve exorbitant costs' for one of the parties. 60 Reference is made to the French concept of imprevision 61 But when is a contract's performance ' excessively onerous' to the debtor?"Ruinous suggests that the performance must lead to the economic breakdown of the debtor. This may be the case in the classic textbook example of the golden chalice to be delivered by the vendor to the buyer that sunk to the ground of the deep sea. But is it necessary that actual $275(3)BGB; cf Zimmermann, n 7, 285f and in German the extensive treatment munchener- Kommentar/Ernst, n 47,$ 275 paras 107ff This term inology was adopted from Art 1467 of the Italian Codice civile; Lando/Beale, n 2, 324 (comment A) Lando/Bea le, n 2, 324(comment A) Cf for Art 6.2.2 of the PICC also U Maskow, Hardship and Force Majeure, 40(1992) American JCL 657.663 Lando/Beale, n 2, 324(comment B() Lando/Bea le, n 2, 324f(comment B(D) ando/Beale, n 2, 324(comment B(). The reference to imprevision is unfortunate as it is rather a comprehensive heading than a singular concept;cfZweigert/Kotz, n 8, 524ff; for imprevision cf also Lorenz, n 8, Iff, D Tallon, Hardship, in A Hartkamp etal(eds), Towards a European Civil Code, 2ndedn(1998), 327 with further references
Electronic Journal of Comparative Law, vol. 8.1 (March 2004), 9 and it is unreasonable to demand it53 . C. Article 6:111: ‘Change of Circumstances’ Now we shall turn to Article 6:111. Included in PECL’s chapter 6, it is primarily concerned with the contracts’ content, but may have an effect similar to Article 8:108. Its paragraph (1) states the general rule that an obligation is not discharged if its performance becomes more onerous. Hence the underlying principle is still the one of pacta sunt servanda. Paragraph (2) provides an exception to this. C.I Prerequisites Paragraph (2) is applicable provided four conditions are satisfied. Firstly, the performance of the contract becomes excessively onerous. 54 Excessively onerous is distinct from an impediment. The performance must be at least ‘ruinous’ for the debtor,55 whereas impossibility presupposes an ‘insurmountable obstacle’56. Thus, extremely onerous means an obstacle of one degree less than impossibility.57 The commentary tries to illustrate the situation in which a change of circumstances brought about a major imbalance in the contract58 within in the particular economic context59. The contract must be ‘overturned by events’, so that performance will involve ‘exorbitant costs’ for one of the parties.60 Reference is made to the French concept of imprévision. 61 But when is a contract’s performance ‘excessively onerous’ to the debtor? ‘Ruinous’ suggests that the performance must lead to the economic breakdown of the debtor. This may be the case in the classic textbook example of the golden chalice to be delivered by the vendor to the buyer that sunk to the ground of the deep sea. But is it necessary that actual 53 § 275 (3) BGB; cf Zimmermann, n 7, 285f and in German the extensive treatment MünchenerKommentar/Ernst, n 47, § 275 paras 107ff. 54 This terminology was adopted from Art 1467 of the Italian Codice civile; Lando/Beale, n 2, 324 (comment A). 55 Lando/Beale, n 2, 324 (comment A). 56 Ibid. 57 Cf for Art 6.2.2 of the PICC also U Maskow, ‘Hardship and Force Majeure’, 40 (1992) American JCL 657, 663. 58 Lando/Beale, n 2, 324 (comment B(i)). 59 Lando/Beale, n 2, 324f (comment B(i)). 60 Lando/Beale, n 2, 324 (comment B(i)). 61 The reference to imprévision is unfortunate as it is rather a comprehensive heading than a singular concept; cf Zweigert/Kötz, n 8, 524ff; for imprévision cf also Lorenz, n 8, 1ff; D Tallon, ‘Hardship’, in A. Hartkamp et al (eds), Towards a European Civil Code, 2nd edn (1998), 327 with further references
ElectronicjournalofcomparatiVeLaw,vol.8.1(march2004), performance leads to collapse, or is it sufficient that performance is disturbed greatly but the debtor would be able to perform thanks to financial reserves? In the latter case it would be ruinous in the sense that any other performance of this kind would lead to the debtors economic collapse. The distinction is very important. A financially strong debtor may sustain a major imbalance while the same case may be ruinous for a financially weaker party It is submitted that the financial power to sustain a major imbala ance must irrelevant because it does not fit the test embodied in article 6: 11 1. This can be explained by looking at the Article itself. Paragraph(1)provides two helpful examples for events that make performance more burdensome: firstly, increase in the cost of performance and secondly devaluation of the counter-performance. Although the initial reference to the party seeking relief, which would accord with the testing method for impossibility,or formance might suggest that the assessment should focus on the isolated performance of Article 6: 1 11 looks at the proportionality of the two performances for only this view can explain why the diminution of the counter-performance's value may suffice The overall financial situation, however, has nothing to do with a comparison of the two performances, thus taking it as the decisive criterion would not fit the comparison embodied in Article 6: 111. It would replace the test with a test of general economic capacity an assessment of the debtor's pockets depth. From the view taken here, the ruinous-test reflects rather the exceptional character of paragraph(2)and may indicate major imbalance In fact it constitutes a threshold exclud ing insubstantial aggravations. Looking at the has become excessively onerous 62 e pal imbalance of the performances in the particular case must thus assess whether a performance The PECL's commentary gives as an example the unexpected closure of the Suez Canal. b3 This happened, too, in the English case of Tsakiroglou Co Ltd v Noblee Thorl GmbH o4 The plaintiff had sold Sudanese nuts c.i.f. Hamburg to the defendant. The usual route from Port Sudan to Hamburg is through the Suez Canal. However, due to the Suez Crisis the canal was blocked and the plaintiff refused to ship the nuts around the Cape of Good Hope, which would have taken twice as long as the route originally intended and would be far more costly. Whereas the PECl would demand the parties to renegotiate, the house of Lords denied frustration and thus upheld the contract. 65 However, some questions remain unanswered. Neither wording nor commentary clarifies how the counter-performance's devaluation should be calculated. An objective calculation would tackle, for example, the case of inflation. If, however, a subjective assessment is allowed, Article 6: 11 l's scope of application would be considerably wider. On the latter approach, it would also cover cases commonly regarded as of frustration of purpose An illustration in the Unidroit Principles of international Commercial Contracts(henceforth This concurs with the position adopted by the PIcc in Art 6. 2. 2; cf the wording equilibrium of the contract ando/ Beale, n2, 325(comment B() sakiroglou& Co Ltd v Noblee Thorl GmbH [1962]AC 93 Ibid. 103
Electronic Journal of Comparative Law, vol. 8.1 (March 2004), 10 performance leads to collapse, or is it sufficient that performance is disturbed greatly but the debtor would be able to perform thanks to financial reserves? In the latter case, it would be ruinous in the sense that any other performance of this kind would lead to the debtor’s economic collapse. The distinction is very important. A financially strong debtor may sustain a major imbalance while the same case may be ruinous for a financially weaker party. It is submitted that the financial power to sustain a major imbalance must be irrelevant because it does not fit the test embodied in Article 6:111. This can be explained by looking at the Article itself. Paragraph (1) provides two helpful examples for events that make performance more burdensome: firstly, increase in the cost of performance and secondly devaluation of the counter-performance. Although the initial reference to ‘performance’ might suggest that the assessment should focus on the isolated performance of the party seeking relief, which would accord with the testing method for impossibility, Article 6:111 looks at the proportionality of the two performances; for only this view can explain why the diminution of the counter-performance’s value may suffice. The overall financial situation, however, has nothing to do with a comparison of the two performances, thus taking it as the decisive criterion would not fit the comparison as embodied in Article 6:111. It would replace the test with a test of general economic capacity, an assessment of the debtor’s pocket’s depth. From the view taken here, the ruinous-test reflects rather the exceptional character of paragraph (2) and may indicate major imbalance. In fact it constitutes a threshold excluding insubstantial aggravations. Looking at the imbalance of the performances in the particular case must thus assess whether a performance has become excessively onerous.62 The PECL’s commentary gives as an example the unexpected closure of the Suez Canal.63 This happened, too, in the English case of Tsakiroglou & Co Ltd v Noblee Thorl GmbH. 64 The plaintiff had sold Sudanese nuts c.i.f. Hamburg to the defendant. The usual route from Port Sudan to Hamburg is through the Suez Canal. However, due to the Suez Crisis the canal was blocked and the plaintiff refused to ship the nuts around the Cape of Good Hope, which would have taken twice as long as the route originally intended and would be far more costly. Whereas the PECL would demand the parties to renegotiate, the House of Lords denied frustration and thus upheld the contract.65 However, some questions remain unanswered. Neither wording nor commentary clarifies how the counter-performance’s devaluation should be calculated. An objective calculation would tackle, for example, the case of inflation. If, however, a subjective assessment is allowed, Article 6:111’s scope of application would be considerably wider. On the latter approach, it would also cover cases commonly regarded as of frustration of purpose. An illustration in the Unidroit Principles of International Commercial Contracts (henceforth 62 This concurs with the position adopted by the PICC in Art 6.2.2; cf the wording ‘equilibrium of the contract’. 63 Lando/Beale, n 2, 325 (comment B(i)). 64 Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93. 65 Ibid, 103
