I. INTRODUCTION

In today’s highly complex and fragile world, declarations of force majeure have almost become commonplace. Depending on their impact they are even publicly reported. For example, in November 2017, the German chemical company BASF declared force majeure for vitamin A and E products after a fire occurred during the startup of one of its plants in Germany. In July 2018, BASF announced that it partially lifts force majeure.¹

In March 2018, the Norwegian company Hydro declared force majeure at its Alunorte alumina refinery in Brazil’s northern state of Para following an order by the country’s authorities to cut output by 50%.² The Brazilian Government ordered Alunorte to operate at half of its capacity because of concerns that severe rainfall in Brazil’s northern state of Para had caused water contamination from the refinery, allegations that Hydro denied.³

In April 2018, it was reported that Swiss-based trading and mining giant Glencore will declare force majeure on some aluminum supply, days after the United States sanctioned major supplier Rusal and its major shareholder.⁴

By making the force majeure declarations, the companies claim that their contractual performance obligations are suspended and they are thus not liable for damages, or even that they may be allowed to walk out of the relevant contracts. Yet may BASF, Hydro and Glencore be excused from non-performance due to fire in its own plant (BASF) or acts of public authority (Hydro and Glencore)? The answer primarily depends on the relevant contract including, as the case may be, a force majeure clause, the interpretation of the force majeure clause in conjunction with other relevant clauses and, in addition, the applicable law. In today’s commercial practice, most contracts include a force majeure clause. The prevalence of force majeure clauses means that there is only limited scope of application for the relevant domestic law doctrines such as frustration (English law), impossibility of performance (civil law systems) or impracticability (American law). Particularly in international commercial transactions, the result is that in the vast majority of cases it is the force majeure clause, and not the applicable law, which will regulate the legal consequences of events beyond the risk and control of the parties on their contractual obligations.⁵

If well drafted and adjusted to the specific risks and needs of the contracting parties, a force majeure clause may offer greater certainty than that afforded by the relevant doctrines of the applicable law.⁶

However, parties frequently adopt more or less standardised ‘boilerplate’ language as a force majeure or ‘Act of God’ clause instead of tailoring force majeure provisions to their actual risks.⁷ Considering the often broad and unspecific language of force majeure clauses (including catch-all phrases such as ‘any other impediment beyond a party’s control’), certainty may again be achieved by interpreting such clauses in a manner consistent with the groups of cases and principles that apply under the force majeure excuse according to general contract principles as reflected in Article 79 CISG⁸ and Article 7.1.7 UNIDROIT Principles⁹ and which have been established by case law under various legal systems.

Many contractual force majeure clauses, including for example the ICC Force Majeure Clause 1985, the ICC Force Majeure Clause 2003 or the 1999 FIDIC Conditions of Contract, widely correspond with the essential features of the force majeure excuse under general contract principles.¹⁰ Frequently, the groups of cases and principles that have been developed by case law under domestic legal systems are similarly relevant for the force majeure excuse under general principles or essentially congruent contractual force majeure clauses. In comparative law it has been acknowledged for many years that "[t]he test adopted [by Article 79 CISG, Article 7.1.7 UNIDROIT Principles] is one which all legal systems treat as crucial, whether they say so or not, and this explains why the results of decided cases are so often alike".¹¹

Against the above background it can be seen that established or persuasive case law, whether rendered under Article 79 CISG, in applying similar doctrines under domestic laws or in interpreting a contractual force majeure clause, is generally of great practical relevance.¹² Whenever appropriate in the light of the terms of a force majeure clause and the applicable law, the clause should be interpreted in a manner consistent with established groups of cases and principles.¹³

Of course, parties may include in their force majeure clause an event which would not, under the applicable law or the general force majeure excuse, afford exemption, or provide for diverging legal consequences. For example, it has been pointed out that the traditional prerequisite of unforeseeability (implicit risk assumption regarding events that are specifically foreseeable at the time of contract conclusion)¹⁴ is no longer a constant in force majeure clauses.¹⁵ With regard to certain defined force majeure events the parties may expressly say that a force majeure event under the contract may be foreseeable. It appears that courts in some states in the United States decline to read an unforeseeability requirement into a force majeure provision that is silent on the question.¹⁶ However, if the force majeure clause is silent about the requirement of unforeseeability, the latter should be implied in accordance with the force majeure excuse under general contract principles, unless other elements or rules of contract interpretation clearly suggest otherwise.¹⁷

II. THE FORCE MAJEURE EXCUSE AS A GENERAL PRINCIPLE LAW

II.A. Short overview of the various approaches under domestic law: impossibility of performance, frustration of contract, impracticability

II.A.1. Impossibility of performance

Under the traditional doctrine of impossibility of performance, the obligor is released from its contractual duty to perform if the impossibility occurred after formation of the contract and cannot be attributed to any kind of fault of the obligor, i.e. wilful or negligent action or omission causing impossibility.¹⁸ Not only objective impossibility (neither the obligor nor anybody else is able to perform), but also subjective impossibility (the obligor is unable to perform, but others could perform) release the non-performing obligor, provided, however, that the obligor is not at fault, or even without fault, that no extension of liability applies, either to impediments caused by fortuitous events when the obligor was in default (mora debitoris) or to impediments for which the obligor has contractually assumed the risk. The concept of impossibility includes situations of physical (absolute) impossibility, e.g. where specific goods identified to a sales contract are destroyed as a result of an intervention of third parties or a natural disaster. It also covers cases of so-called "legal impossibility", e.g. where the object of performance is subjected to confiscation, expropriation, embargos, export or import restrictions or where performance is otherwise rendered impossible by an act of public authority, as well as economic impossibility (impracticability), i.e. cases of (extreme) economic hardship rendering performance "excessively or unreasonably onerous".¹⁹

II.A.2. Frustration of contract

Contrary to civil law, in English common law the obligor’s liability does not depend on fault. The doctrine of frustration was established in 1863 in Taylor v Caldwell²⁰ to mitigate the rigour of the common law’s insistence on literal performance of absolute promises. Frustration of contract has been defined as follows: "The doctrine of frustration operates to discharge a contract where, after the formation of the contract, something occurs which renders performance of the contract impossible, illegal, or something radically different from that which was in the contemplation of the parties at the time of entry into the contract."²¹ It is emphasised that the scope of the doctrine is narrow: frustration is not to be invoked lightly to relieve contracting parties of the normal consequences of imprudent commercial bargains.

Under English law a main advantage of a force majeure clause is said to consist in the degree of remedial flexibility which it affords, which is in stark contrast with the rigid and drastic consequences of the finding that a contract has been frustrated, where the contract is immediately and automatically brought to an end, irrespective of the wishes of the parties.²²

II.A.3. Impracticability

As regards the standard adopted in the US, Restatement (Second) of Contracts—§ 261. Discharge by Supervening Impracticability states the general principle under which a party’s obligation may be discharged due to impracticability: "Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary." The doctrine of impracticability is based on the central inquiry whether the non-occurrence of the circumstance (i.e. the impediment to performance) was a "basic assumption on which the contract was made". Insofar, the decisive question is to determine which party assumed the relevant risk. Moreover, the term ‘impracticability’ has deliberately been preferred to the term ‘impossibility’ on the grounds that the latter may be understood to be limited to situations of absolute impossibility or may not be appropriate as an all-embracing term to describe the required extent of the impediment to performance. Generally there is a significant convergence of the requirements of the exemptions under American law and the force majeure (and hardship exemption) under general contract principles, making the consideration of American case law also meaningful for determining their content.²³

II.B. The force majeure excuse under the CISG, the UNIDROIT Principles and contractual force majeure clauses

A comparative law analysis shows that under all major contract laws an obligor may be excused in one way or another if non-performance is brought about by a force majeure event. While the relevant requirements vary from one system to another, in substance the differences appear to be only nominal in nature. The force majeure exemption (excuse due to an impediment beyond the obligor’s risk and control) under Article 79 CISG and Article 7.1.7 UNIDROIT Principles has overcome these differences and reflects a good digest of the decisive requirements.

The force majeure excuse under general contract principles contains the following requirements:²⁴

1. The obligor did not assume the risk of the occurrence of the impediment, in particular, it could not reasonably be expected to have taken the impediment into account at the time of conclusion of the contract (no explicit or implicit risk assumption); and

2. The impediment was beyond the obligor’s (typical) sphere of control; and

3. The non-performance was caused by the impediment; and

4. The impediment or its consequences could not reasonably have been avoided or overcome.

The force majeure excuse was explicitly recognised as a general principle of law by the Iran-United States Claims Tribunal.²⁵

It may be presumed that the force majeure excuse as reflected in Article 79 CISG was also influenced by contractual force majeure clauses existing at the time.²⁶ Typical force majeure clauses which are regularly inserted as boilerplate clauses in international commercial contracts are essentially in line with Article 79 CISG/Article 7.1.7 UNIDROIT Principles. In particular, the ICC Force Majeure Clause 1985 is based on the general force majeure formula corresponding to Article 79(1) CISG.²⁷ It also includes an illustrative list of force majeure events and provides for the effects of grounds of relief in a somewhat more detailed manner.²⁸ The ICC Force Majeure Clause 2003 similarly includes a general force majeure formula and a list of events, the occurrence of which alters the evidential balance in favour of the party invoking the clause.²⁹ The general formula triggering the consequences of force majeure set out in paragraph 1 of the Clause includes within it elements of the previous ICC Force Majeure Clause 1985, Article 79 CISG, Article 8:108 PECL and Article 7.1.7 PECL.³⁰

III. SALIENT FEATURES OF THE FORCE MAJEURE EXCUSE AS ILLUSTRATED BY RECENT CASE LAW

The cases discussed below have been selected to address a few particular issues of interest; they are not intended to be an exhaustive summary of all recent cases on force majeure.

III.A. Typical sphere of control of the obligor—responsibility for its own organization and the measures to be taken to perform the contract

III.A.1. Introduction

A primary aspect of the obligor’s typical sphere of control is the proper and careful organisation of its business and the necessary measures for the proper performance of the contract. In general, only ‘external’ impediments over which the obligor has no influence can excuse the obligor. Thus, ‘internal’ impediments to performance which are caused by ‘intra-firm’ or ‘production process-related’ events relating to an ordinary preparation, organisation and implementation of the measures that are necessary for effecting performance belong to the sphere of control of the obligor.³¹ The obligor must organise its business in an orderly manner. In commercial dealings it may generally be expected that each party organises its firm so as to avoid or overcome events which may disrupt the ordinary function of the firm, regardless of whether such events are specifically unforeseeable or whether the event occurs without the fault of the obligor or its personnel. This principle is illustrated by Great Elephant Corp v Trafigura Beheer BV (The Crudesky) (III.A.2. below). However, extraordinary tortious or criminal acts (so-called excess acts) such as acts of sabotage (but not occasional thefts), which lead to impediments to performance, will normally be considered beyond the obligor’s sphere of control.³²

The above principles are also relevant to evaluate whether new risks such as cyber-attacks may exempt a party based on force majeure.³³ In particular, a party who has suffered from a cyber security incident is unlikely to be protected if the incident was brought about by its own failings, such as not adhering to its own IT security policies or industry standards or its non-compliance with agreed IT security in the contract itself. The required measure of control with regard to IT issues may also depend on the nature of the parties’ businesses and the purpose of the contract. The more crucial technology is to the relevant party’s business, the less likely it is that an attack or accident on such infrastructure may be considered beyond its reasonable control.³⁴

III.A.2. Great Elephant Corp. v Trafigura Beheer BV (The Crudesky)³⁵

The dispute involved a chain of sale contracts of Nigerian crude oil. In breach of local regulations, Total, the operator of the Akpo oil terminal in Nigeria, commenced the loading of the vessel Crudesky without the presence of a representative of the Nigerian Oil Ministry because its employees thought that the irregular loading had been authorised. This led

to the vessel being detained by the Nigerian authorities for a month and a half, only being released upon payment by Total of a fine of USD 12 million. The buyers at the top of the chain incurred considerable demurrage as a result of the delay and sought to pass their losses down the chain. The Court of Appeal decided, reversing the Commercial Court’s judgment, that force majeure clauses in the sale contracts did not protect the sellers of the cargo because the events leading to the breaches of contract were not beyond the control of Total, to whom the sellers in the chain had delegated the performance of their obligation under the sale contracts to load the cargo.³⁶

The Court found that Total had failed to comply with the applicable Terminal Procedure Guide, which provided for the DPR (Nigerian Department of Petroleum Resources) to sign the inwards clearance certificate of the vessel on arrival and before loading commenced. In practice, this had become a requirement for the DPR in Lagos to grant clearance through the official channel of communication with Total in Lagos, which Total at Lagos did not seek until 1 September, after loading had already commenced. Under these circumstances, Total had opted to take a riskier route via their Terminal representative instead of going through the official channel in Lagos. This was an action which was within Total’s control.³⁷ The Court stated in particular:³⁸

It goes without saying that a force majeure clause must be construed in accordance with its own terms; it also need hardly be emphasised (a) that it is an exceptions clause and any ambiguity must be resolved against the party seeking to rely on it and (b) that the concept of being "beyond [a corporate person’s] control" sets a comparatively high hurdle since corporations usually do have a significant measure of control over their own business, see (…). All that said, it is necessary to look at the individual clauses.

III.B. Impediment beyond the typical sphere of risk and control of the obligor: procurement of generic goods

III.B.1. Introduction

The seller of generic goods bears the procurement risk. Any subsequent "impediments" to performance will not affect the seller’s obligation to procure generic goods inasmuch as the seller still has the possibility to select other goods of the relevant category, i.e. as long as the goods of the relevant type are available on the market or from the sources identified in the contract. The extent of the procurement risk depends on whether the seller has an unlimited obligation to procure under the contract or only a restricted one; that is, it depends on how the sources of performance by which the seller is to perform have been determined in the contract (e.g., global market, locally restricted market, particular manufacturer or supplier, particular stock, etc.) Unless indicated otherwise in the contract, the seller of generic goods must procure the goods on the (worldwide) market. The seller remains obligated to procure the goods at least as long as goods of that type of goods exist. By contrast, the procurement risk is restricted if the contract limits the seller’s delivery obligation to one or several source(s) of supply.³⁹ The question as to whether or to what extent the procurement risk is contractually limited is a typical area of dispute. A case in point is the Award in ICC Case 19566 of 2014 (III.B.2. below).

III.B.2. Global Tungsten & Powders Corp. v Largo Resources, Ltd, Award in ICC Case 19566 of 2014⁴⁰

The Parties’ claims arose out of a Supply Agreement (Agreement) and a Letter of Intent. As set out in the Preamble to the Agreement, "Seller [Largo] agrees to sell, and Buyer [GTP] agrees to purchase" tungsten⁴¹ concentrate meeting certain specifications and derived from certain sources, "on the (…) terms and conditions set out in the Agreement". According to Section 1 of the Agreement, the "Initial Term" of the Agreement was from 1 July 2011 to 30 October 2015, with the possibility of a two-year extension. The Agreement was governed by the law of Pennsylvania and, because the Agreement is a sales contract, the Uniform Commercial Code (UCC), as adopted in Pennsylvania.

It was undisputed that Largo did not deliver the Monthly Minimum quantities of tungsten concentrate provided for under the Agreement. Largo sought to limit its obligations to GTP in this respect by arguing that the Agreement should be interpreted as requiring supply only from Currais Novos. In addition, Largo relied among others on force majeure. GTP contended that the plain language of the Agreement did not limit Largo’s supply obligation to "Material" sourced from Currais Novos. The following contract clauses were considered:⁴²

[Second] "WHEREAS" clause of the Preamble (…): "[Largo] agrees to sell, and [GTP] agrees to purchase the Material (as defined below) derived from the mine site, the tailings described on (sic) Exh. A attached hereto or from such other sources as may be approved in writing by [GTP], all on the following terms and conditions…" (emphasis added) (…)

[F]irst paragraph of Section 3 of the Agreement (…): "[Largo] commits to ship Material to [GTP] a minimum per month of metric ton units of WO3 contained (‘mtu’s’) equal to the Monthly Minimum (defined below) in accordance with purchase orders issued by [GTP] (sic)." (…)

Section 2 defines Material as "Wolframite, Ferberite, Huebnerite or Scheelite tungsten ore concentrate of Brazilian Processing Facility origin or equivalent non-U.S. Defense Department Logistic Agency (DLA) origin material, as may be mutually agreed in writing in advance, in accordance with [GTP’s] specification MT02000-04A attached as Exh. B hereto (‘WO3’ or the ‘Material’).

The Arbitral Tribunal found in particular:

86. We agree with Largo. We find that its obligations to supply tungsten concentrate to GTP under the Agreement were inextricably tied to production at Currais Novos.

87. In particular, we fail to see how GTP could reasonably claim that Largo was under an obligation to supply Material from any source other than the mine site at Currais Novos when GTP itself never "approved" (as set out in the Preamble) or "agreed" (as per Section 2 and Section 3, 3rd paragraph) or "consent[ed]" (Section 3, 5th paragraph) to the supply of alternatively-sourced Material, as required by the Agreement. (…)

88. There is no evidence that GTP ever demanded that Largo supply Material from any other source than Currais Novos, or that it indicated to Largo that it (Largo) was required to do so to satisfy its obligations under the Agreement. This was acknowledged by Dr. Laursen. (Tr. 446, 448, 451). It was also acknowledged by GTP’s Counsel. (Tr. 24-25, 37-38). To the contrary, the Parties’ course of performance indicates clearly that they both intended that the Material to be supplied under the Agreement was to be sourced from Currais Novos. (…)

91. But there is more here than mere course of performance, which could be said to provide ex post facto confirmation of the Parties’ intentions under the Agreement. Support for the understanding of the Parties’ intentions, as indicated by their conduct, is found as well in the text of the Agreement itself. (…)

94. (…) Taking "[t]he whole instrument … together" (Hart v Arnold, 884 A.2d at 332], that is, interpreting the Agreement "as a whole, giving effect to all of its provisions" (In re Spring Ford Indus., Inc., 338 B.R. 255, 262 (E.D. Pa. 2006)), we are of the view that Largo’s argument as to the proper interpretation concerning the source of Material to be supplied to GTP (…) is the more compelling. (…)

95. We also agree with Largo that the terms of Section 3, 5th paragraph, provide a further helpful means of understanding Section 2 and of interpreting the Agreement "as a whole". If, as GTP claims, Largo’s supply obligations were to supply GTP tungsten concentrate of any origin whatsoever, then the option offered to Largo in Section 3 to source material from elsewhere, and the requirement that GTP expressly consent to this beforehand, would be meaningless.

96. Finally, even if GTP were correct regarding the Parties’ intentions as reflected in the particular terms of the Agreement on which GTP relies -- primarily the Preamble and Sections 2 and 3 -- the fact remains that the Agreement also requires that certain defined steps be taken before Largo’s supply obligations could be expanded either to permit or to require Largo to supply GTP tungsten concentrate from sources other than Currais Novos. As previously discussed, no such steps were ever taken by either Party and Largo was, accordingly, under no such obligation.

97. In sum, we find that the text of the Agreement supports Largo’s interpretation of its obligations as concerns the source of Material to be supplied to GTP. We consider that the Parties’ intent in this regard is further borne out by their course of actual performance, which, far from contradicting the terms of the Agreement, helps to explain those terms and provides a compelling indication of what the Parties intended the Agreement to mean.

Largo’s force majeure excuse was based on Section 15 of the Agreement (the force majeure clause). Largo argued that, since the end of October 2012, its water supplies at Currais Novos had been depleted because of an unprecedented drought in the Currais Novos area, as a result of which the operation of the plant and the production of tungsten concentrate had been suspended. Largo contended that, since that date, it was excused from its delivery obligations under the Agreement because the drought was an ‘act of God’ that had prevented or hindered it from delivering any tungsten concentrate under that Agreement.

GTP accepted that the northeastern area of Brazil (including Currais Novos) had been affected by a severe drought, but contended that Section 15 did not relieve Largo from its performance obligations because of a number of reasons, including in particular (i) the alleged non-restriction of Largo’s supply obligations to Currais Novos, so that the drought in northeastern Brazil would have been irrelevant (as seen above, that argument was rejected by the Tribunal); (ii) Largo had never overcome the unrelated production issues arising out of the failure of the concentrators to perform as expected or intended, so that even if there had been no drought, Largo would have been unable to meet its supply obligations under the Agreement (this is a causation issue which will be discussed below at III.G.2.); (iii) Largo had failed to demonstrate that it had insufficient water available to it to enable it to produce the agreed monthly quantities of tungsten concentrate (this issue relates to the non-performing party’s duty to overcome the impediment, discussed below at III.E.3.)

III.C. Impediment beyond the typical sphere of risk and control of the obligor: performance becomes more burdensome versus hardship

III.C.1. Introduction

The risk that performance may become more burdensome, even if not foreseeable at the time of contract conclusion, in principle falls into the obligor’s sphere of risk and control. Under Article 79 CISG, the risk that the market price for the goods sold drops after conclusion of the contract or that the goods otherwise lose their value is borne by the buyer; the risk of a price increase or an increase in the costs of procurement or manufacture is borne by the seller.⁴³ Generally, a party is liable for its own financial ability to perform; it guarantees its financial ability and cannot be excused because of lack of money. In particular, the seller is not exempted if it cannot acquire the goods or materials to manufacture them because a business loan has been terminated, even if without its fault. An exemption is only possible if, because of unforeseeable circumstances, a very extraordinary depreciation of money occurs, or the seller’s delivery, acquisition or production costs increase to such an extent that a case of economic impossibility has occurred.⁴⁴ The buyer’s sphere of control also includes its having money to pay the purchase price. Liquidity issues are no ground for exemption. It further falls into the buyer’s sphere of control to ensure that it has the necessary foreign currencies to pay the purchase price. The buyer can be exempted only if payment in the foreign currency is forbidden due to an act of state and payment is not possible by any other means, or would be unreasonable according to good faith.⁴⁵ Both Tandrin Aviation Holdings Ltd v Aero Toy Store LLC and another and ICC Case 18769 of 2014 (Cessna v Gulf Jet) illustrate the principle that an economic downturn may not constitute a force majeure event (III.C.2. and III.C.3. below.)

However, under Article 79 CISG (and the force majeure excuse under general principles), it should be assumed along with the prevailing view expressed by legal commentators that not only factual, but also economic impediments to the obligation to perform may have an exemptive effect for the obligor, provided that said impediments are exceptionally serious.⁴⁶ Where the line between such situations and situations of hardship or economic impossibility (limit of sacrifice) is to be drawn must be decided on a case-by-case basis taking into account all relevant circumstances including any risk assumption by the obligor (e.g. as a result of a speculative transaction).⁴⁷ Applying an abstract guideline for the limits of reasonability (hardship threshold) likely represents a practical need, but must not prevent an assessment taking all relevant circumstances of the individual case into consideration.⁴⁸ A case in point where the Arbitral Tribunal granted relief under Article 79 CISG, interpreted or supplemented in light of the hardship rules of Articles 6.2.1 to 6.2.3 UNIDROIT Principles, is the Award in ICC Case 16369 of 2011, Swiss buyer v Kosovo seller (III.C.4 below).

III.C.2. Tandrin Aviation Holdings Ltd v Aero Toy Store LLC and another⁴⁹

The case involved the sale by Tandrin to ATS of an executive jet aircraft for USD 31.75 million. ATS paid a USD 3 million deposit but failed to take delivery of the aircraft or pay the residual purchase price. Due to a severe deterioration in the global economic situation, the buyer was unable to obtain financing to enable it to proceed with the purchase. The buyer argued that the "unanticipated, unforeseeable and cataclysmic downward spiral of the world’s financial markets" fell within the force majeure clause;⁵⁰ therefore it did not have to honour the sale agreement. The Court rejected the argument:

It is well established under English law that a change in economic/market circumstances, affecting the profitability of a contract or the ease with which the parties’ obligations can be performed, is not regarded as being a force majeure event. Thus a failure of performance due to the provision of insufficient financial resources has been held not to amount to force majeure—see The Concadoro [1916] 2 AC 19; and likewise a rise in cost or expense—see Brauer & Co (GB) Ltd v James Clark (Brush Materials) Ltd [1952] 2 All ER 497, [1952] 2 Lloyd’s Rep 147, [1952] 2 TLR 349.

The buyer further pointed to the contract wording of the force majeure clause and argued that the change in economic situation was "any other cause beyond the seller’s reasonable control", and that this should also apply to causes beyond the buyer’s control. In rejecting this argument, the court considered inter alia that there was not even a remote connection in any of the specific examples of force majeure to economic downturn, market circumstances or the financing of the deal. It is likely that the court’s decision would have been the same if the clause had been construed to be "mutual" and had referred to "any other cause beyond either party’s reasonable control".⁵¹

III.C.3. Cessna Finance Corporation v Gulf Jet LLC (Final Award), ICC Case 18769 of 2014⁵²

The arbitration was brought by the Cessna Finance Corporation, an American corporation, for amounts due and owing and for damages in respect of the breach of two aircraft lease agreements (the Leases) between Cessna and Gulf Jet LLC, a Dubai-based company incorporated under the laws of the United Arab Emirates. Cessna alleged that Gulf Jet defaulted on its payment obligations under the Leases which eventually led to the repossession and resale of the aircraft by Cessna in accordance with the terms of the Leases. Following the sale of the two aircrafts, Cessna claimed a total of USD 8.33 million in respect of both Leases plus additional interest and costs. Cessna also claimed against two UAE citizens as guarantors.

Gulf Jet had ceased making payments under each of the two Leases and argued that circumstances of economic hardship at that time gave rise to a different defence negating the consequence of non-payment as a breach. Gulf Jet asserted that the payment obligations under the Lease became impossible to perform by reason of the severe economic crisis which occurred in Dubai following the economic downturn commencing in September 2008. It submitted that for reasons beyond its control, it became impossible for Gulf Jet to operate and exploit the use of the leased Cessna jets solely by reason of the economic crisis in the Emirate of Dubai. Gulf Jet asserted that under the Laws of the Emirate of Dubai, a judge "will have the option to endorse the discontinuity of the lease or reduce the burden to a reasonable extent". Gulf Jet also characterised this defence as the "occurrence of a force majeure being the economic crisis".

The Sole Arbitrator rejected Gulf Jet’s submissions. He held in particular:

133. First, despite the significant reliance by Gulf Jet on a law of the United Arab Emirates or a law of the Emirate of Dubai, none was identified for appropriate review and consideration to establish the applicability of such a broad concept of force majeure to the Leases in this case. (…)

134. Second, and more importantly, the laws of the Emirate of Dubai or the United Arab Emirates simply do not apply to this dispute. The Leases are governed by the laws of the State of Kansas in the United States of America. (…)

135. Third, as submitted by the Claimant, the Leases and the Guarantees expressly provide that force majeure is no excuse for non-performance. Paragraph 15 of each Lease provides in part as follows:

" … Lessee acknowledges and agrees that its obligation to pay any sums due to OWNER hereunder shall not be discharged, diminished or otherwise affected by any force majeure, and shall not be deemed paid unless and until such sums are actually and fully received by OWNER in United States dollars in the United States." (emphasis added)

Therefore, by its own agreement, Gulf Jet is precluded from raising and relying on a force majeure event.

136. Fourth, even if there was a form of force majeure clause in the Leases, the application of Kansas law would likely preclude the extension of any standard force majeure clause to include risks of changing economic or market conditions of the type described and relied upon by Gulf Jet. (…)

137. (…) Indeed, Cessna assumed no risks associated with a force majeure clause as no such clause was included in the Leases. No such clause can be implied as a matter of Kansas law as force majeure was expressly excluded. (…)

III.C.4. Buyer (Switzerland) v Seller (Kosovo), Final Award, ICC Case 16369 of 2011⁵³

The Kosovo Seller (which was a socially-owned enterprise, at the time put under the administration of a UN agency) entered into a contract for the supply of a commodity with the Swiss Buyer. The contract provided for several deliveries and a purchase price based on a price formula with fixed parameters and variables. It was governed by "the substantive law of Switzerland". The CISG applied as part of Swiss law.

Twenty-one days after the contract was signed, Buyer communicated the date on which the first shipment was to be loaded; also on that day, the price of the commodity collapsed. As a consequence of the collapse, which continued over a period of time, the formula agreed in the contract led to a purchase price that was minimal and even negative in respect of certain deliveries. Seller failed to deliver any of the agreed quantities, and Buyer could not perform under the onward sale contract with Second Buyer.⁵⁴

The Sole Arbitrator rejected the view that the contractual force majeure clause could provide exemptive relief to the Seller, especially on the ground that the force majeure clause’s catch-all phrase "or any other cause whatsoever beyond the control of Seller or Buyer whether of the foregoing nature or not" should be limited to events ejusdem generis with those previously enumerated.⁵⁵

However, the Sole Arbitrator then went on and essentially considered that by means of interpretation or gap-filling, Article 79 CISG should be interpreted in light of the hardship rules of Articles 6.2.1 to 6.2.3 UNIDROIT Principles.⁵⁶ In finding that the prerequisites of hardship are met, he stated:⁵⁷

[114] The agreed purchase price according to Clause 6 of the Contract was determined by reference to the [Exchange]. Of the basis price certain deductions (Treatment Charge and Penalties) were to be made (…). On the basis of the agreed formula (price parameters minus deductions) the average contract price to be paid by the Claimant would have been (…). During the month preceding the Contract (when the Parties presumably negotiated and the Contract was drafted), specialized trade media reported (i) that stored reserves were decreasing; (ii) that numerous sources of supply were no longer available; (iii) that the outlook for the following years targeted [a higher sum]. And indeed the average price for the month before the Contract was higher than the August price.

[115] When the Contract was signed this was the general outlook. The price was comparatively low, yet applying the contractual purchase price formula the contractual quantity would still have yielded [a certain amount].

[116] From that moment on, the market almost collapsed. And when the Claimant three weeks after the conclusion of the Contract instructed the Respondent to prepare for the loading of the first shipment this was against the background of a historic low in the commodity’s price. Applying the contractual purchase price formula, the result was negative. To say that the performance the Respondent was to receive had diminished would be putting it exceedingly mildly.

[117] Moreover, the short-term outlook continued to be bleak: based on the Claimant’s submissions, the price continued to be negative in the following two months and would have been again negative four months later.

[118] The remaining requirements of Art. 6.2.2 are also met. The market breakdown occurred after the conclusion of the contract (a). It could, in view of the situation and the expectations as described supra, not reasonably have been taken into account by the Respondent (b). It was beyond the control of the Respondent (c).

[119] At this point the question arises as to whether the risk of the market breakdown was not assumed by the Respondent (Art. 6.2.2(d)). Indeed, where parties to a contract of sale for delivery over a period of time agree on the market price at any point in time the seller may well be deemed to have assumed even the risk of not receiving any consideration in return for the goods sold. Exchange rates may collapse without that collapse qualifying as hardship. Yet the case at hand is different. The price formula agreed in Clause 6 with certain fixed parameters and a number of variables, including increases and decreases of the treatment charge in function of above-average and below-average settlement prices in the Tribunal’s view reflects the Parties’ understanding that market shocks were not to be assumed by either one of them but rather constituted a shared risk.

The Sole Arbitrator concluded "that adaptation (rather than termination) is both reasonable" and "fair" and determined, in accordance with a proposal made by the Buyer responding to the Tribunal’s additional queries, that "X per metric ton was the relevant minimum basis for the purposes of the contractual price formula according to Clause 6 of the Contract."⁵⁸

III.D. Unforeseeable impediment

III.D.1. Introduction

In general, the obligor can only be exempted if the impediment to performance was not foreseeable at the time of contract conclusion and it, or its consequences, could not be avoided or overcome.⁵⁹ The requirement of "foreseeability" is to be seen in the context of risk allocation. If the impediment was specifically foreseeable at the time of contracting, it is presumed that the obligor has assumed the risk of its occurrence. This presumption may be rebutted if the circumstances clearly suggest that the obligor has not assumed the relevant risk. In particular, it must be assessed whether the extent and time of the impediment to performance was specifically foreseeable.⁶⁰ The issue is illustrated by the 2006 award in a case administered by the Centro de Arbitraje de Mexico (CAM) (III.D.2. below).

III.D.2. CAM Award of 2006 (El Niño)⁶¹

A Mexican grower (respondent) and a US distributor (claimant) concluded in September 2004 a one-year exclusive agreement according to which respondent undertook to produce specific quantities of squash and cucumbers and to provide them to claimant on an exclusive basis, while claimant had to distribute the goods on the Californian market against a commission. The contract included a choice of law in favour of the UNIDROIT Principles as the applicable substantive law. The US distributor claimed damages as a result of the Mexican grower’s failure to provide the goods. The latter objected that its failure to deliver the goods was due to the destruction of the crops by a series of extraordinarily heavy rainstorms and flooding caused by the meteorological phenomenon known as El Nino. According to respondent, these events amounted to a case of force majeure and/or hardship and therefore any liability on its part was excluded.

On the Mexican grower’s defence that the rainstorms and flooding which destroyed the crops amounted to a case of force majeure, the arbitral tribunal held that the meteorological events in question did not meet the requirement set out in Article 7.1.7(1) UNIDROIT Principles defining force majeure, i.e. that the non-performing party could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract. While the rainstorms and flooding were undoubtedly beyond respondent’s control, according to the tribunal, their occurrence could not be considered unforeseeable by respondent which in the course of its long-standing activity in the agricultural sector had already several times experienced similar events.

This award may be criticized on the basis that it does not seem to discuss whether the grower had to provide the products only out of its own production. The limitation of the grower’s procurement obligation to deliver crop only from its own production may imply that it did not assume the risk of exceptional weather conditions affecting its own crop, irrespective of the question of foreseeability. In contrast to wholesalers or large dealers (as sellers), growers/producers are generally not in a better position than buyers to assume the risk of extreme weather conditions.⁶² Moreover, the interest of growers/manufacturers to sell out of their own production, without assuming the risk of adverse weather conditions (even if generally foreseeable), at least to the extent that their effects cannot be reasonably avoided or overcome, and to limit their procurement risk accordingly, may be self-evident from the circumstances.

III.E. Insurmountable impediments (could not have been overcome)

III.E.1. Introduction

The obligor must take measures reasonable and appropriate under the circumstances to avoid or overcome the impediment or its consequences as far as possible. For example, if the transportation route is closed in a manner that was not foreseeable (e.g. because of early pack ice), the obligor must divert the goods if at all possible and bear the additional costs as long as the performance of his obligations does not become excessively onerous.⁶³

Of particular interest are the Suez Canal cases: as a result of the closing of the Suez Canal due to hostilities in the Middle East in 1956 and again in 1967, ocean carriers and sellers (on CIF terms) were forced to use the longer and more costly route around the Cape of Good Hope. Both American and English courts rejected the carriers’ and sellers’ argument that they were excused, on the grounds that carriage through the Suez Canal was not intended to be an exclusive method of performance, and that carriage around the Cape of Good Hope was an alternative way of performing. In the Suez Canal cases, the increase in cost by taking the route around the Cape of Good Hope did not amount to hardship, and was not held to frustrate the contract.⁶⁴

An impediment can be overcome if the obligor is capable of employing a commercially reasonable substitute for the performance (e.g. generic goods which are only marginally different) or the performance modality (e.g. other packaging, other transport route, other place of delivery, etc.) the obligor owes.⁶⁵ The problem is illustrated by the Paris Chamber of Arbitration Case 3150 of 2011 (III.E.3. below) and also by the Award in ICC Case 19566, Global Tungsten & Powders Corp. v Largo Resources, Ltd (III.E.3. below).

If it is at issue whether the non-performing party may rely on an act of public authority as an excuse for non-performance, the relevant act should principally be considered as a factual element under the contract in dispute and the applicable doctrine of excuse. This means that a legal impediment may have to be overcome.⁶⁶ The Arbitral Award of the Permanent Court of Arbitration of 2009 in Granuco S.A.L. v The Food and Agricultural Organization of the United Nations is an illustration (III.E.4. below).

III.E.2. Award in CAP Case No. 3150 of 2011⁶⁷

The French Seller entered into two sale and purchase contracts with the German Buyer for the sale of "French rapeseed conventional 00". The contracts were governed by French law. They required that the rapeseed meet the requirements of German law on the production of sustainable biofuels (Biokraftstoff-Nachhaltigkeitsverordnung) and bioliquids (Biomassestrom-Nachhaltigkeitsverordnung). The German legislation referred to in the contracts constituted the transposition of the 2009 European Directive on the promotion of the use of energy from renewable sources (ENR Directive) in Germany. The Seller was thus contractually obliged to provide a sustainability certificate in accordance with the German legislation transposing the ENR Directive. The Seller did not provide such certificate, claiming force majeure because at the relevant time the ENR Directive had not been transposed in France and there was no French body authorised to issue sustainability certificates. The Tribunal found no force majeure, considering that it was established that two other French operators had obtained certificates complying with German legislation and valid in Germany from a German body in the relevant period. However, the Tribunal considered that the probative value of the certificates in respect of French goods obtained by others was "questionable" and concluded that according to French law, the Seller breached (only) an accessory, rather than essential contractual obligation.⁶⁸

III.E.3. Global Tungsten & Powders Corp. v Largo Resources, Ltd, Award in ICC Case 19566 of 2014⁶⁹

As seen above (III.B.2.), GTP asserted that Largo had failed to demonstrate that as a result of the unprecedented drought in the Currais Novos area it had insufficient water available to enable it to produce the agreed monthly quantities of tungsten concentrate. The issue as to whether Largo would have been in a position to reasonably overcome the impediment (drought) was addressed by the Arbitral Tribunal as follows:⁷⁰

The availability of water at Currais Novos

153. In addressing this issue, the Tribunal begins with an observation as to the ambit of Section 15 [the force majeure clause⁷¹]. While the language of that section, is in our judgment, broad enough to cover partial as well as total prevention of performance, it is for the affected party (which seeks to avail itself of the plea of force majeure as an excuse for non-performance) to establish on the evidence either that it was totally prevented from performing, or that it was partially prevented from performing, by the force majeure event on which it relies. Thus, if it Claims only to have been partially prevented from performing, it is for the affected party to establish the extent to which it was affected. However, in this case, Largo has not asserted that at any time it was partially prevented from performing. It has maintained simply that, by reason of the drought, it is excused from performance since October 2012. In other words, its claim is that the drought has totally prevented it from performing its supply obligations under the Agreement since that date. There is, therefore, no room in this case for a finding of partial prevention.

154. One of the ways in which Largo thought that it might be able to address the problem caused by the drought was by installing a new water reticulation System. (…)

165. The brand new water reticulation system that was contemplated was, in any event, not installed. We understand the commercial reasoning that lay behind Largo’s decision not to install the new System, although we suspect that it may also have been prompted, at least in part, by Largo’s recognition of the fact that it had not yet overcome the concentrator problems that had so beset operations at the plant from the very beginning. However, we are here concerned only with the applicability of Section 15 of the Agreement, which requires that the affected party use its "commercially reasonable best efforts" to overcome the force majeure event. The evidence was that the new water reticulation system would have cost approximately US$120,000-$165,000 (or 150,000 Brazilian Reals). (Exhs. C-115 and C-116; Tr. 784-785 (Brennan)). While these figures are not precise, we are satisfied that the obligation on Largo to use its "commercially reasonable best efforts" to overcome the problem presented by the drought warranted expenditure of that order. In January 2013, Largo had just drilled 13 new wells, and refurbished one other well; as a result of which the amount of makeup water then available was sufficient for the production of 2,847 tons of tungsten concentrate in that month. While there was a high level of uncertainty as to how much makeup water would be available in the future, the making of that "comparatively minor expense" (Largo P-H Mem., ¶ 172) would, in our judgment, have satisfied Largo’s best efforts obligation under Section 15; and, in the event, would have allowed some production under the contract to continue for several months thereafter.

166. GTP also suggested that Largo could also have solved the problem caused by the drought by trucking water to the plant. That suggestion we unhesitatingly reject. The drought affected the whole of northeastern Brazil, so the only available source of water would have been from the coast, which was over 230 kilometers away. In order to truck in sufficient water to maintain the targeted production rate of 150 tons per hour, it would be necessary to employ thirty tracks an hour—in other words, one every two minutes, on a continuous basis—over a period of at least 1 1/2 to two days per month. Even if physically possible, the suggestion is, in our view, both economically unviable—as Mr. Brennan and Menchen both stated—and utterly unrealistic. (Tr. 839-41 (Brennan); Tr. 948-50 (Menchen)).

167. GTP submitted that that was not good enough, since Section 15 expressly provides that "business impracticability" does not amount to force majeure. However, in our judgment the two paragraphs of Section 15 have to be read together. In the second paragraph of the same section it is provided that: ‘The Parties shall use their commercially reasonable best efforts to avoid the occurrence and remove the causes of an event of Force Majeure and to continue performance of their respective obligations hereunder promptly following the removal of such causes.’

In our view, in contrast to the comparatively inexpensive construction of a more efficient water reticulation system, the shipment of sufficient quantities of water in by truck from the coast, at a rate of 720 trucks per day (even if only for two days a month), would call for efforts on the part of Largo well beyond the "commercially reasonable best efforts" that it was required to make in an attempt to address the problem. A "business impracticability" that does not give rise to force majeure means, in our judgment, a situation that can be addressed by the affected party using its commercially reasonable best efforts; not one that can only be addressed by going to unrealistic, impractical and uneconomic extremes.

168. Finally, we have previously noted that, as Largo submitted, once the drought took effect continuous production was no longer possible—and would not have been possible even had the new water reticulation System been in place. We recognize that to run the plant for a short period each month is not a commercially attractive proposition. However, it is clearly possible to do so. Largo has given evidence that over the period in which production has been suspended, various tests have been carried out, and that the plant has been run for a few days at a time, using the limited water that was available, for that purpose. (Tr. 889-90, 917-18 (Menchen)). There was therefore no impediment (other than the fact that Largo had not yet resolved the concentrator problem) to Largo’s running the plant each month for a sufficient period of time to produce as much tungsten concentrate as the available makeup water would permit. (…)

170. As we have noted above, Largo has not advanced a case of partial prevention in respect of the early months of the drought. On the contrary, Largo’s personnel were commenting at that time—both internally and to GTP—that they had sufficient water available to run the plant for several months. On the basis of that evidence, and in the absence of any more precise information as to the amount of makeup water that was available from other sources, such as the lake; or as to the date by which the new water reticulation system could have been installed; or the like (on all of which Largo bears the burden of proof), we conclude that Largo has failed to make out its force majeure excuse prior to June 2013.

III.E.4. Granuco S.A.L. v The Food and Agricultural Organization of the United Nations, Permanent Court of Arbitration, Award of 2009⁷²

Claimant, a Lebanese company with a plant in Spain, concluded a contract with respondent, the Food and Agricultural Organization of the United Nations (FAO), for the delivery of animal feed with particular specifications indicated in the contract. When claimant failed to comply with the delivery terms despite reiterated requests by respondent to perform, respondent terminated the contract. Claimant objected to the termination, arguing, among others, that its non-performance was caused by an "EU Decision" coming into force after contract conclusion which prohibited the export of the types of feed ordered by respondent from European Union member states to third countries—in the case at hand to Iraq. The Arbitral Tribunal decided in favour of respondent. The contract provided for the application of "general principles of law to the exclusion of any national legal system", and the Tribunal, in accordance with the Parties’ pleadings, subsequently applied the UNIDROIT Principles. As to claimant´s argument that the EU Decision amounted to a case of force majeure, the Tribunal held that the EU Decision did not represent an absolute impediment to perform because claimant was able to transfer its plant from Spain to Brazil and could have performed the contract from that new location.

III.F. Temporary impediment—when a force majeure event can be considered as having come to an end and legal effects

III.F.1. Introduction

Generally, impediments to performance only exempt the obligor as long as they exist.⁷³ After the temporary impediment has fallen away, the obligor must again perform; the effect of the exemption is then to give the obligor extra time for performance. Depending on the effect of the interruption on the progress of the contract, the extra time may be greater than the length of the interruption caused by the temporary impediment.⁷⁴ This principle was applied in Carboex SA v Louis Dreyfus Commodities Suisse SA (III.F.2. below) and in the Award in ICC Case 18982 (III.F.3. below). In that Award one of the key questions was when the temporary force majeure event must be considered as having come to an end (III.F.3. below).

Furthermore, a comparative law analysis suggests that under certain circumstances an equation of a temporary with a permanent impediment to performance—and correspondingly a permanent exemption—may be assumed.⁷⁵ Such an equation may be considered where it appears reasonable that the impediment will persist for the whole or such a large part of the period allowed by the contract for performance as to substantially interfere with the contractual purpose. The analysis involves an estimation of the probable length of time during which the impediment is likely to persist, as well as a balancing of the parties’ mutual interests in order to assess whether the impediment substantially interferes with the contractual purpose.⁷⁶

III.F.2. Carboex SA v Louis Dreyfus Commodities Suisse SA (English Court of Appeal)⁷⁷

The claimant owner, Louis Dreyfus Commodities Suisse S.A. entered into a contract of affreightment (COA) with the respondent charterer, Carboex S.A., a subsidiary of Endesa, the largest electric utility company in Spain, for the carriage of ten cargoes of coal from Indonesia to Spain for use in Endesa’s power stations. Carboex chartered four vessels and an issue arose as to whether a delay in discharge at the Spanish port, by reason of an official nationwide haulage strike in Spain and a subsequent unofficial stoppage by truck drivers, was excluded from the computation of time for the charter. The charterer relied on a force majeure clause (Clause 9 COA) which explicitly included "strikes"⁷⁸ and asserted that the time lost by each of the vessels did not count against laytime. Some of the vessels arrived at the port after the strikes had finished. One of the questions was whether this clause included delays caused by congestion at the port following strikes, as strikes were already over when the vessel arrived at port. The dispute had been submitted to arbitration, and the arbitrators answered the question in the negative. In reversing the decision, the Commercial Court held that it should be answered in the affirmative, and especially considered that Clause 9 COA also applies in the case of a vessel which is delayed by the after-effects of a strike (congestion at the port) which has ended.

In dismissing the appeal and confirming the Commercial Court decision, the Court of Appeal took the view that the general language of Clause 9 COA supported the view that it was the parties’ intention that the charterer should not only be protected from strikes that directly interfered with cargo handling operations, but also from the effects of strikes that prevented or delayed the vessel entering berth in order to discharge.

This decision thus confirms the principle that the effects of a force majeure event may extend beyond the time at which the event itself ends. It will depend on the circumstances of the individual case to determine the extra time after the force majeure event has ended during which the exemption is still operative.

III.F.3. Final Award in ICC Case 18982 of 2014⁷⁹

The case involved a natural gas transportation contract between a carrier and a shipper for a three-year period. For the purposes of this transportation, the carrier used a pipeline owned by a third party. After a natural disaster affected the operation of the pipeline, the owner of the pipeline closed it for several months, pending performance of important repair works and safety measures. The parties were in disagreement as to when the force majeure situation was lifted and when transportation should resume as provided for under the contract. The contract contained a typical force majeure clause and was subject to Swiss law. While the carrier asserted that the transportation of gas would have resumed on date X when it informed all shippers that the gas transportation would be available with full capacity the following day, the shipper maintained that the resumption on date X had only been declared to be "on a temporary basis" and might have to be interrupted on a notice that might be as short as just "a few hours". The shipper’s position was that the monthly transportation charge was suspended until a significantly later date Y as a consequence of the force majeure events, when the transportation of gas could again be carried out without any restriction through the pipeline on a partially re-routed section which was constructed in the meantime.

The Tribunal considered that a force majeure event can be regarded as having come to an end when the performance of the obligations affected by the event is again fully possible and unrestricted, i.e. is not subject to other or more extensive restrictions than those which might have affected the performance before the occurrence of the force majeure event, provided that minor discrepancies should not be taken into account.⁸⁰ On a particular date (date Z, after date X but prior to date Y), it was established and communicated to the shipper that the probability of a preventive interruption of at least once per month was only about 0.3%. The Tribunal found that a probability of 0.3% was objectively an insignificant risk, and therefore a minor restriction or limitation to the performance of the contract as compared to the situation which prevailed before the occurrence of the force majeure events. Thus it found that force majeure was lifted as from that date. It was uncontested that the shipper would need another two to three business days to get the business back up again after the lifting of the force majeure. As a result, the suspension of the shipper’s payment obligations was suspended for additional three business days and thereafter the shipper could have reasonably resumed its nominations and shipping activities and was thus again liable under the ship-or-pay scheme of the contract.

III.G. Causation

III.G.1. Introduction

Under the general force majeure exemption it is required that the unforeseeable impediment which could not be avoided or overcome was the cause of the non-performance.⁸¹ If the goods are lost during an unforeseeable natural disaster due to defective packaging (contributing cause), the obligor cannot exempt itself if the loss of the goods would not have occurred without the contributing cause, i.e. the defective packaging. By contrast, the obligor is excused had the loss occurred even if the goods had been properly packed.⁸² In the latter scenario, the force majeure event is a supervening stand-alone cause, and the fact that the negligent packaging would also on its own have caused the loss does not prevent the obligor from relying on the exemption. This principle has also been confirmed in Global Tungsten (Award in ICC Case 19566; III.G.2. below).

Moreover, there is generally no causal link between the impediment and the non-performance if the impediment did not yet exist at the time when the performance was due and should have been effected (cases of default).⁸³ However, if the parties have agreed on a force majeure clause, the language of that clause may of course provide that an exemption is even possible if the obligor is in default. The point is illustrated by the Award in ICC Case 19222 of 2016, General Dynamics United Kingdom Ltd. v State of Libya (III.G.3. below).

III.G.2. Global Tungsten & Powders Corp. v Largo Resources, Ltd, Award in ICC Case 19566 of 2014⁸⁴

It has been seen above (III.B.2) that GTP argued that Largo’s force majeure defence should also fail on the grounds that there would have been another concurrent (stand-alone) cause for Largo’s non-performance, i.e. its production problems with the concentrators that were unrelated to the drought and non-availability of sufficient water at Currais Novos. In rejecting the argument, the Arbitral Tribunal stated as follows:⁸⁵

150. GTP next argued that Largo had not proved that the drought—as opposed to the unrelated production problems with the concentrators—was the cause of its non- performance after October 2012. We shall return to the factual element of this argument shortly, but it also has a legal element, raising the question whether, as a matter of law, a supplier will be excused from performance where it is hindered or prevented from meeting its supply obligations by two separate causes, for one of which the supplier is responsible and the other of which it is not. This issue has been considered by courts in New York and elsewhere, and in our judgment the answer is clear. The existence of the force majeure event trumps the supplier’s inability to perform for other reasons. In other words, if—because of the force majeure event—the supplier could not have supplied the product even if there had been no other impediment to its doing so, then it is entitled to rely on the force majeure event to excuse its non-performance; it does not have to prove that it would have been able to perform had the force majeure event not occurred. (See Commonwealth Edison Co. v Allied-General Nuclear Serv., 731 F. Supp. 850, 860 (N.D. III. 1990); New York Trust Co. v Island Oil & Transp. Corp., 34 F.2d 653, 654 (2nd. Cir. 1929); Fratelli Pantanella S.A. v International Comm. Corp., 89 N.Y.S. 2d 736, 739-40 (N.Y. Sup. Ct. 1949)). Therefore, for the purposes of the force majeure defense, we put to the side the fact that, throughout the period of the drought, Largo has faced continuing production problems at the plant.

III.G.3. General Dynamics United Kingdom Ltd. v State of Libya, Award in ICC Case 19222 of 2016⁸⁶

On 5 May 2008, the State of Libya (Libyan Procurement Department) (seller, respondent) and General Dynamics United Kingdom Limited (seller, claimant) entered into a contract whereby respondent purchased the Libyan Tactical Communication and Information System (LTCIS) from claimant. The LTCIS is a digitized communications and information system aimed at providing secure voice and data communications in the tactical domain, integrated into vehicles. The LTCIS contract provides for the supply of the LTCIS, the installation of LTCIS into the former 32nd Brigade Libyan Army vehicles and related services such as training. The LTCIS contract was subject to Swiss law (excluding the CISG) and included a force majeure clause.

Between March 2009 and August 2010, Milestones 1 to 4 as set out in Annex I to the LTCIS contract were performed by claimant and paid for by respondent in accordance with the LTCIS contract. Half of the payment for each Milestone was set off against the advance down payment, and the other half was paid from the Confirmed Letter of Credit in favour of claimant.

On 26 July 2010, claimant invoiced respondent for the amount of GBP 8,249,816 for Milestone 5. On 9 November 2010, claimant invoiced respondent for GBP 821,134 corresponding to Milestone 6. Respondent did not at that time provide claimant with the acceptance certificates necessary under the LTCIS contract in order for claimant to receive payment under the Confirmed Letter of Credit. The matter of non-payment for Milestones 5 and 6 was the subject of negotiations between the parties in January and February 2011.

In February 2011, events in Libya led to civil unrest and ultimately civil war, international sanctions, international military intervention, and the fall of the Libyan Government led by Muammar Gaddafi. On 22 February 2011, claimant issued respondent with written notice of a force majeure event pursuant to Condition 22 of the LTCIS contract.

The Arbitral Tribunal considered that the military situation in Libya was an impediment excusing respondent’s performance under the force majeure clause and especially considered that this was the case even though respondent was in default prior to the force majeure events arose:⁸⁷

250. With reference to Condition 22.1 of the LTCIS Contract, the Tribunal is of the view that the military situation in Libya from 17 February until 23 October 2011 falls squarely with the events contemplated as potential force majeure impediments, i.e. "civil commotion, riot, terrorism or the threat of terrorism, insurrection or hostilities whether or not declared, war, conditions which may adversely affect the safety of their employees and/or equipment…". Indeed, this was the very basis for Claimant’s own notice of force majeure on 22 February 2011.

251. Further, the Tribunal is persuaded that Respondent was actually impeded from performing its obligations regarding payment for Milestones 5 and 6 while those force majeure conditions prevailed. (…)

263. Claimant argues that Respondent may not rely on force majeure because it was already in default before the alleged force majeure events arose, breaking the causal link to the force majeure impediment, consistent with Article 103 of the Swiss Code of Obligations.⁸⁸

265. The Tribunal recalls that the wording of Condition 22.1 of the LTCIS Contract is unequivocal in stating that "[t]he Parties shall not be in default and will assume no liability or responsibility for the consequences arising out of the interruption of their performance of this Contract by any [force majeure events]". The effect of the operation of Clause 22.1 is to "suspend performance up to a period equal to the delay". This strong and unambiguous wording of the agreement between the Parties must, in the Tribunal’s opinion, operate so as to suspend Respondent’s obligations and excuse it from any default, liability or responsibility arising there from. The clear language of the Parties’ agreement prevails over the non-mandatory provision of Article 103 of the Swiss Code of Obligations. Therefore, even though Respondent was in default prior to the force majeure event, Condition 22.1 of the LTCIS Contract excludes Respondent from bearing the burden of any liability or responsibility arising out of the interruption, and prevails over Article 103 in this respect. (…)

 

III.H. Notice requirement (and relevance of actual notice)

III.H.1. Introduction

Article 79(4) CISG and Article 7.1.7(3) UNIDROIT Principles provide that the non-performing party must ensure that notice of the impediment and of its effect on its ability to perform is received by the other party within a reasonable time after the non-performing party knew or ought to have known of the impediment. The obligor’s duty to warn the obligee of the occurrence of the obstacle and of its consequences for the performance under the contract is an application of the general obligation of good faith.⁸⁹

In case of a failure to notify the other party within a reasonable period of time, the other party is entitled to damages for any loss resulting from the non-receipt or late receipt of such notice. This is explicitly provided for in Article 79(4) sentence 2 CISG and Article 7.1.7(3) UNIDROIT Principles. The obligee is financially to be put in a situation as if the notice had been given in time and in sufficiently complete form. It follows that the obligor’s exoneration from its performance obligation does not depend on the compliance with the duty to notify. Contractual force majeure clauses may take a different approach, and provide that the notice requirement is a condition precedent to invoking force majeure. However, as convincingly pointed out by the Tribunal in Global Tungsten (Award in ICC Case 19566; below b.), "clear language is required in order for a force majeure notice obligation to be construed as a condition precedent", and "that whether or not the party complaining of lack of notice had actual knowledge of the circumstances giving rise to the force majeure event is a relevant consideration." The Tribunal concluded that under the circumstances the language of the force majeure clause "provided always that prompt written notice shall be given" was not enough to construe it as condition precedent, especially as the party complaining of the lack of notice had been given actual notice.

The question as to whether the non-performing party is precluded from relying on the force majeure clause by its failure to give formal notice was also answered in the negative in the Award in ICC Case 19222 of 2016, General Dynamics United Kingdom Ltd. v State of Libya (III.H.3. below).

III.H.2. Global Tungsten & Powders Corp. v Largo Resources, Ltd, Award in ICC Case 19566 of 2014⁹⁰

In Global Tungsten, the Arbitral Tribunal had to deal with the often litigated question whether the requirement of the force majeure clause calling for a written notice of force majeure by the affected party had been met, and if not, whether it is to be considered as a condition precedent to the right to invoke force majeure.⁹¹

174. It is clear, in our judgment, that Section 15 of the Agreement calls for a written notice of force majeure to be given by the affected party:

"In the event of any … act of God … preventing or hindering Seller … from giving … delivery of Material under this Agreement, deliveries may be suspended during such time of Force Majeure declared by the affected Party, providing always that prompt written notice shall be given by the affected party to the other Party"(emphasis added).

175. GTP argues that, in order to comply with this provision, the notice had specifically to claim force majeure—which the e-mail of October 29, 2012 did not—and it relies in this connection on the evidence of Mr. Brennan, who confirmed in cross-examination that he deliberately did not claim force majeure at that time, because with all the other problems that were then affecting the plant, he did not want to antagonize GTP. (Tr. 793). GTP points out that the commercial purpose of the notice requirement in Section 15 is not simply to tell the other party that a problem has arisen, but to alert it to the fact that, as a consequence, the affected party is claiming certain contractual consequences; namely, that its obligation to make deliveries under the contract is suspended pro tem; that a problem has arisen which they are required to work together to try to resolve; and, that—absent possible termination if the event continues long enough—the contract term will be extended by a period equal to the period of suspension. Thus, GTP submits that, while Largo provided it with the necessary information to support a claim of force majeure on October 29, 2012, it plainly did not advance a claim that it was excused from performance under the contract on account of the drought at that time; and therefore cannot now rely on force majeure as a defense.

176. Largo argues that the information that mattered—the drought, its impact on the plant, and the fact that operations were being suspended—were all conveyed in that communication, and that it is irrelevant that the talismanic words "force majeure" were not used. It contends that, as a matter of law, actual notice of a force majeure event, and of its impact on the performance of the affected party, is sufficient notice. (…)

182. What we take from these cases is, first, that the intention of the parties, as reflected in the language they have chosen, will be determinative; secondly, that clear language is required in order for a force majeure notice obligation to be construed as a condition precedent; thirdly, that whether or not the party complaining of lack of notice had actual knowledge of the circumstances giving rise to the force majeure event is a relevant consideration; and, fourthly, that, if it is not a condition precedent, the obligation will be construed as a duty, failure to comply with which will not deprive the breaching party of the right to invoke force majeure unless the breach is a material breach.

183. In our judgment, bearing these considerations in mind, Largo has the better of this argument for two reasons.

184. First, while Section 15 requires that written notice be given, it does not require that the affected party must declare force majeure by using that term in order for the clause to be triggered. We conclude that if written notice is given both of the force majeure event that is relied upon and of the fact that deliveries may be suspended during the period in which that event is operative—both of which conditions were satisfied in this case—then the notice is a good notice under the clause, even though the words "force majeure" are not used. We accept Largo’s submission that Mr. Brennan’s e-mail of October 29, 2012 (coupled with the press release that was attached to that e-mail) advised Dr. Laursen of the drought, of the impact that the drought was having on the plant, and of the imminent suspension of operations at the plant as a result; and that that was sufficient to give GTP actual notice of the circumstances giving rise to the claim of force majeure that was later made. The words "force majeure" are, in our judgment, a convenient shorthand or label by which to describe the relevant event and its consequences. Their use is not a sine qua non to the applicability of the clause under Pennsylvania law, however, unless the Parties clearly provided to the contrary (which they have not).

185. Secondly, if we are wrong about that, we would accept Largo’s submission that the requirement in Section 15 that the affected party expressly declare force majeure is to be considered not as a condition precedent to the right to invoke force majeure, but as giving rise to a contractual duty, breach of which will only deprive the affected party of that right if the breach is a material breach—namely, one that causes harm or prejudice to the other party. There being no evidence of any harm to, or prejudicial effect on, GTP by virtue of Largo’s not having been declared force majeure in so many words before September 13, 2013 (when it served its Answer and Counterclaim), the Tribunal concludes that Largo’s failure to do so cannot be characterized as a material breach. Accordingly, Largo is not deprived of its right to invoke force majeure as a result.

186. We have given close consideration to the fact that Mr. Brennan deliberately decided not to declare force majeure in October 2012, but it does not affect our conclusion. In our judgment, his decision not to call a spade a spade at that point in time did not turn a good notice into a bad notice, or a minor breach into a material breach. It is, accordingly, irrelevant.

Force Majeure Conclusion

187. In summary, we are satisfied on the evidence that the drought has prevented Largo from meeting its delivery obligations under the Agreement since June 30, 2013; and we conclude that Largo is entitled to rely on the drought as a force majeure event excusing it from performance since that date.

III.H.3. General Dynamics United Kingdom Ltd. v State of Libya, Award in ICC Case 19222 of 2016⁹²

The Arbitral Tribunal in General Dynamics similarly considered whether the affected party’s failure to give notice of the force majeure impediment precluded it from relying upon that impediment to excuse its non-performance:⁹³

269. The Tribunal recalls the language in Condition 22.1 of the LTCIS contract, which states in relevant part:

The Parties shall not be in default and will assume no liability or responsibility for consequences arising out of the interruption of their performance of this Contract by any external, absolute, invincible and/or unforeseen events such as any labour disputes which delay work, epidemics, fires, floods, unusually severe weather or any other natural disturbances or natural physical disasters; civil commotion, riot, terrorism or the threat of terrorism, insurrection or hostilities whether or not declared, war, conditions which may adversely affect the safety of their employees and/or equipment, restrictions due to quarantines, blockades, embargoes, severe market shortages, inability to obtain raw materials or components; and all similar causes beyond the reasonable control of the Parties that arise without the fault or negligence of the Parties or their subcontractors and that result in the delay or failure to execute the work provided in the Contract. Such circumstances shall result in an excusable delay, and the affected Party shall notify the other Party in writing, by electronic means, or registered letter within five (5) working days of the date the concerned Party first becomes aware of said events, and provide an estimate of the consequences. A delay resulting from any of the stated events, or significant events of a similar uncontrollable nature, shall suspend performance up to a period equal to the delay or otherwise to be mutually agreed upon by both Parties.

270. The provision first, and in no uncertain terms ("shall not be in default", "will assume no liability", "shall result in an excusable delay"), excuses a delay or default arising out of a force majeure interruption, before mentioning the requirement to give notice. Based on the structure and language of Condition 22.1, the Parties did not intend notice to be a prerequisite, or condition precedent, to the operation of this provision. The requirement to give notice is an additional one.

271. The Tribunal therefore disagrees with Claimant’s assessment that only delays which have been the subject of a notice may be excused. (178) "A delay resulting from any of the stated events… ", does not, as argued by Claimant, (179) refer to "stated events" in a notice, but the potential force majeure events outlined in Condition 22.1. So much is clear when the words are read in context: "the stated events, or significant events of a similar uncontrollable nature". Similar references are made throughout the provision to the "said events", being shorthand for all possible force majeure events listed in Condition 22.1.

272. The Tribunal finds further confirmation in the statement that a delay resulting from force majeure events "shall suspend performance up to a period equal to the delay", i.e., the length of the suspension is determined by reference to the objective fact of the delay, rather than by reference to any notice, unless the Parties mutually agree otherwise. (…)

277. The Tribunal accepts Respondent’s submission in this respect that failure to give notice, as a breach of the duty to act in good faith, creates liability in damages for any loss suffered by Claimant as a result of not being informed (see ¶ 196 above).

278. According to Claimant, notice would have put it in a position to "evaluate and, if necessary, deny that the claimed force majeure event actually interrupts the concerned obligation, or propose possible solutions … to overcome any perceived obstacles to performance". (183) It also objects that Respondent did not claim force majeure until its Statement of Defence in these proceedings. (184) However, Claimant was aware of the military situation in Libya and its impact upon the performance of the LTCIS Contract, having issued its own force majeure notice in relation to the same events. Claimant cannot, in the Tribunal’s view, claim to be unaware of the implications of the force majeure events for Respondent’s performance of the LTCIS Contract as well as its own. (…)

282. On the basis of the foregoing, the Tribunal is not persuaded that Claimant missed an opportunity to evaluate and oppose Respondent’s force majeure impediment (or to consider granting Respondent any further extensions of the grace period to remedy its default, or otherwise waiting, before issuing an Article 107(2) Notice), or that it suffered harm for which Respondent is liable as a result of its failure to give notice of force majeure. For the same reason, the Tribunal does not consider it decisive that Respondent made no claim of force majeure prior to its Statement of Defence in these proceedings. (…)

284. The Tribunal therefore finds that notwithstanding the lateness of Respondent’s upon force majeure, it is not precluded from relying upon that provision by its failure to give formal notice to Claimant, which was well aware of the circumstances prevailing in Libya at the time.

IV. CONCLUSION

The above presentation of recent case law by arbitral tribunals and state courts provides instructive insights into commonly litigated issues on force majeure. Although the presented case law is a selection and does not claim to be comprehensive, two important conclusions may be drawn from the decisions.

First, they confirm that in international commercial contracts, the impact of force majeure events is mostly regulated by the terms of a force majeure clause rather than by the relevant doctrine of the applicable law. In all but one or two out of the eleven decisions the contract included a force majeure clause. However, this does not mean that the applicable law would have been meaningless; in fact, most decisions also make reference to the applicable law, often for the purpose of contract interpretation and to seek guidance from established case law on the relevant issue, either rendered in the context of force majeure clauses or the rule on force majeure of the applicable law.

Second, while the eleven decisions above were rendered under English law, Pennsylvania law (including the UCC as adopted in Pennsylvania), Kansas law, the CISG (being part of Swiss law), French law, the UNIDROIT Principles, and Swiss law (excluding the CISG), the substantive discussion of the respective issue of force majeure is mostly consistent with the groups of cases and principles that apply under the force majeure excuse according to general contract principles as reflected in Article 79 CISG and Article 7.1.7 UNIDROIT Principles and which have been established by case law under various legal systems. This goes to show that especially in international arbitrations, the uncertainty associated with the (to some extent necessarily) broad or unclear language of many contractual force majeure clauses may be overcome by interpreting them in a manner consistent with the groups of cases and principles that apply under general contract principles and are evidenced by persuasive case law.

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