Issue raised
Amid escalating global trade frictions and increasingly stringent tariff policies, the application and interpretation of force majeure clauses in international trade have grown more complex. In international merchandise trade, the United Nations Convention on Contracts for the International Sale of Goods (CISG) demonstrates broad applicability. This article will focus on Article 79 of CISG to discuss force majeure mechanisms, sharing practical insights on risk prevention and resolution strategies.
Force Majeure
The term force majeure has a long history and existed as early as the ancient Roman period. Now most countries in the world recognize force majeure as one of the exemption reasons for contracts, and it has become an effective exemption reason in the contracts of their own countries or regions as well as foreign-related contracts.
Generally, force majeure falls two categories: natural causes (disasters caused by natural forces such as earthquakes and floods) and social causes (such as wars, strikes, or government bans). While natural causes are typically more readily accepted by contract parties, disputes often arise when dealing with social causes. Different countries have varying regulations in this regard, making it easier for parties to disagree and potentially leading to legal disputes.
2. Force Majeure clause in CISG
Most countries worldwide have established regulations regarding force majeure, with a generally unified understanding of its core definition: events that are unforeseeable, beyond control, and insurmoun by the affected parties. However, discrepancies exist in terminology and interpretations across legal systems. In common law jurisdictions, force majeure is termed "breach of contract"; civil law countries often use "changes in circumstances" as an native term; while the CISG (Convention on International Trade in Goods and Services, Contracting Parties) adopts the concept of "obstacles" to describe force majeure. This neutral approach in defining force majeure demonstrates the conventions commitment to avoiding bias toward specific legal frameworks. Such terminology consistency helps resolve disputes over how to apply force majeure clauses across different jurisdictions, effectively preventing confusion caused by inconsistent legal terminology.
1) Definition of force majeure
The CISG refers to force majeure as "obstacles." In Article 79(1), the definition of an obstacle states: "An event that is beyond the partys control and for which there is no reasonable expectation that it could have been foreseen, avoided, or overcome at the time of contract formation." This indicates that the CISG defines an obstacle as an event that the contracting parties cannot control, and for which they could neither foresee nor mitigate its consequences at the time of contract formation. A textual analysis reveals that the CISGs definition of obstacles aligns closely with the fundamental concept of force majeure, with no essential difference. The CISG adopts a general approach to defining the scope of force majeure.
2) Force majeure involving a third party
Article 79(2) of the CISG governs force majeure involving third parties. A party may be exempt from liability only if their non-performance arises from the failure of a third party they have engaged to perform all or part of the contract. Exemption applies under two circumstances: first, when the party is exempt under the preceding provision; second, when such exemption would also apply to their employed third party. The author interprets this provision as requiring that a non-performance of contractual obligations by a party be attribu to the failure of a third party they have engaged to perform part or all of the contract. Such events qualify as force majeure for the contracting parties, thereby absolving them from corresponding liability. However, the third partys liability may not be exempt, as their circumstances might not meet the force majeure criteria. The third party can only be exempt if their situation also qualifies as force majeure. This provision addresses the complexity of international sales contracts, contractual performance responsibilities lie with the parties, yet actual execution often depends on third-party contractors. Consequently, force majeure involving third parties becomes relevant in such cases.
3) Exemption period
Article 79(3) of the CISG establishes the exemption period for force majeure: "The exemption provided in this article shall remain valid during the duration of the impediment." This provision can be interpreted through two key aspects: First, impediments may only serve as grounds for exemption during their existence. Temporary impediments provide temporary relief, and after their resolution, the contracting parties must still fulfill their obligations. In such cases, the emergence of an impediment primarily serves as a justification for delayed performance rather than allowing immediate termination of the contract. If the breaching partys delayed performance does not constitute material breach, the counterparty should accept the delay rather than terminating the contract. Similarly, the breaching party cannot terminate the contract immediately but must continue performance after the impediments resolution. Second, temporary impediments may constitute permanent exemptions. When temporary impediments substantially the objective conditions for contract performance, causing severe consequences that render the contract unperformable and material breach occurs, requiring continued performance by the breaching party becomes unreasonable and violates the principle of fairness. In such circumstances, the parties may opt to terminate the contract.
4) Duty to notify
Article 79(4) of the CISG stipulates: "The party failing to perform its obligations must notify the other party of the impediment and its effect on its ability to perform. If such notice is not received by the other party within a reasonable time after the party in default became aware or should have become aware of the impediment, it shall be liable for damages caused by the other partys failure to receive the notice." This clarifies that the defaulting party has a statutory ancillary obligation to notify. When a contract party encounters force majeure obstacles during performance, they must notify the counterparty. Failure to do so entails corresponding legal liability. This liability refers to additional losses incurred by the counterparty due to delayed notification, not losses from the inability to perform the contract due to force majeure. The defaulting party must not only inform the counterparty of the force majeure impediment but also specify whether it partially or completely prevents performance. This allows the counterparty to comprehensively assess the situation and formulate mitigation strategies. The notification must be delivered within a reasonable timeframe.
5) Scope of exemption
Article 79(5) of the CISG stipulates: "This provision shall not prejudice any party from exercising rights other than claims for damages under this Convention." This clarifies that it only exempts the breaching party from compensation liability for contract performance failures due to force majeure, while other obligations remain binding. Non-breaching parties may still claim remedies such as price reduction. In my view, the inclusion of this provision in Article 79 demonstrates the Conventions sophistication by allowing contractual flexibility and judicial discretion – a testament to its legislative wisdom.
3. Legal consequences of force majeure
1) Termination of contract
Force majeure constitutes a statutory ground for contract termination. When such circumstances trigger contract termination, the parties are granted statutory termination rights tly by both contracting parties. In international trade, there are two primary scenarios contract termination applies due to force majeure: First, when the fulfillment of contractual objectives becomes fundamentally unachievable due to force majeure constituting a material breach, the parties may terminate the contract to minimize economic losses. Second, when prolonged force majeure substantially undermines contractual obligations, termination becomes permissible. Generally, force majeure is temporary in nature. While the occurrence of such events may lead to reasonable expectations that contracts can continue after the event concludes, if the duration exceeds a reasonable period and substantially deprives the parties of contractual benefits, either party may terminate the contract by notifying the other party within a reasonable timeframe.
2) Delay in performance of the contract
Delayed performance of a contract constitutes another legal consequence of force majeure exemption. When force majeure only temporarily impedes contract fulfillment without fundamentally undermining its objectives, the breaching party may first suspend performance. Upon the termination of the force majeure event, the contract may then be resumed, resulting in delayed performance. In such cases, the breaching party is entitled to claim exemption from liability.
As the analysis demonstrates, determining which legal consequence applies in force majeure-induced contract termination hinges on whether the force majeure event prevents the fulfillment of the contracts fundamental purpose. If the core objective becomes unachievable, termination becomes applicable, thereby terminating the contract. When the fundamental purpose remains attainable, delayed performance may apply—postponing execution until conditions permit. These approaches are not mutually exclusive: as noted earlier, prolonged force majeure could escalate from delayed performance to outright termination. Notably, neither party bears liability for damages under these circumstances. It should be emphasized that this analysis assumes force majeure possesses legal validity; without such legal standing, the concept of its legal consequences would lose its foundation.
4. Concluding remarks
In todays world economic and trade cooperation between nations is becoming increasingly close, the scale of international trade in goods continues to expand. Given the inherent complexity of international sales contracts, numerous uncertainties often arise during contract execution. This makes the introduction of force majeure clauses particularly crucial, as they effectively share risks and enhance contractual certainty. For international trade agreements, force majeure clauses carry significant importance—they not only protect the rights of all parties involved but also ensure smooth transactions, thereby promoting the healthy development of global commerce.
