Force Majeure and Hardship under UNCISG and Ethiopian law (By our professional guest author Yidnekachew Tadele - LL.B., LL.M (Federalism Studies) and LL.M Candidate (International Investment Law) Honourable yidnekachew is currently working as a judge at Addis Ababa City Appelate Court.

Introduction

The article that is entitled Force Majeure and Hardship under UNCISG and Ethiopian law discusses only about UNCISG and Ethiopian law. The paper doesn’t discuss about other UN convection or other countries’ laws.

The article has five parts. The first part discuss about the general concept of force majeure and hardships. The second part discusses about the similarity and differences of force majeure and hardship.  The Third one discusses about force majeure and hardship under UNCISG. The fourth part discusses about force majeure and hardship under Ethiopian law. Under the fifth and the last part the article the writer concludes the paper and gives some recommendations. 

1-The general concept of force majeure and hardship

A basic and universally accepted principle of contract law is "pacta sunt servanda." This principle means that each party to an agreement is responsible for its non-execution, even if the cause of the failure is beyond his power and was not or could not be foreseen at the time of signing the agreement.[1] The principle reflects natural justice and economic requirements because it binds a person to their promises and protects the interests of the other party. But the concept of force majeure and hardship is the exception of this principle.[2]

Force majeure is a French term that literally means "greater force." It is related to the concept of an act of God, an event for which no party can be held accountable, such as a hurricane or a tornado. Force majeure also encompasses human actions, however, such as armed conflict. [3]

Generally speaking, for events to constitute force majeure, they must be unforeseeable, external to the parties of the contract, and unavoidable (irresistible). These concepts are defined and applied differently by different jurisdictions. So force majeure is generally intended to include occurrences beyond the reasonable control of a party,

Hardship in a contract is intended to cover cases in which unforeseen events occur in such a way that they fundamentally alter the equilibrium of a contract resulting in an excessive burden being placed on one of the parties involved. Hardship typically recognized that parties must perform their contractual obligation even if events have rendered performance more onerous than would reasonably have been anticipated at the time of the conclusion of the contract.

Hardship clause is a clause in a contract that is intended to cover cases in which unforeseen events occur that fundamentally alter the equilibrium of a contract resulting in an excessive burden being placed on one of the parties involved.[4]

Hardship clauses typically recognize that parties must perform their contractual obligations even if events have rendered performance more onerous than would reasonably have been anticipated at the time of the conclusion of the contract.

However, if continued performance has become excessively burdensome because of an event beyond a party's reasonable control that it could not reasonably have been expected to have taken into account, the clause can obligate the parties to negotiate alternative contractual terms to allow for the consequences of the event reasonably.[5]

2-The similarity and differences of force majeure and hardship

The hardship clause is sometimes used in relation to force majeure, particularly because they share similar features and they both cater to situations of changed circumstances. The difference between the two concepts is that hardship is the performance of the disadvantaged party becoming much more burdensome but still possible.[6] Force majeure refers to a party's contractual requirements have become impossible, at least temporarily. Hardship is a reason for a change in the contractual program of the parties. The aim of the parties remains to implement the contract. Force majeure, however, is situated in the context of nonperformance and deals with the suspension or termination of the contract.

3-Force majeure and Hardship under UNCISG

Article 79 United Nation Convection in Sales of Good States that “(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it, or its consequences. (2) If the party’s failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if:(a) he is exempt under the preceding paragraph; and (b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him. (3) The exemption provided by this article has effect for the period during which the impediment exists. (4) The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt. (5) Nothing in this article prevents either party from exercising any right other than to claim damages under this Convention”. Then Article 79 is the provision of the CISG, that deals with situations of changed circumstances. More precisely, it deals with the circumstances in which the buyer or seller may be excused from performance of his contractual obligations because of an extraneous event that is judged sufficiently important to warrant the excuse. This is a situation which is referred to as frustration, force majeure.

Paragraph one of provision sets out the conditions under which a party is not liable for a failure to perform any of his obligations. Under the provision the expression "failure to perform" does not specify the nature of the non-performance.[7] The term "failure to perform" must be considered here in the broadest sense of the word. Accordingly, the non-performance may be total or partial, delayed or defective. Article 79 refers to any obligation, no matter which party is concerned. Thus, the buyer and the seller are subject to the same conditions.[8] Under the provision there is silent on the point of the time of the impediment's occurrence. Therefore, the question arises as to whether Article 79 applies in situations where the impediment existed at the time of the conclusion of the contract and was unknown to both parties.[9] So, in these case must be applies national laws.

 Under paragraph two the third person must be someone who has been engaged to perform the whole or a part of the contract. It does not include suppliers of the goods or of raw materials to the seller. There must be an "organic link" between the main contract and the sub-contract.[10]

Under paragraph four in the case of a failure of notification, it should be noted that the damages for which the non-performing party is liable are only those arising out of the failure of the other party to have received the notice, and not those arising out of the non-performance.[11]

Paragraph five  restrains the effects of the exemption to one remedy alone and reserves to the party who did not receive the agreed performance  all of its remedies except damages. These remedies include the right to reduce price (Article 50), the right to compel performance (Articles 46 and 62), the right to avoid the contract (Articles 49 and 64) and the right to collect interest as separate from damages (Article 78).It could be argued that paragraph (5) entails unrealistic results.[12] It would allow an action for specific performance in a case where the goods are destroyed and thus, the performance is physically impossible.

Regarding to hardship in article 79 is not covered. There is no rule contained in the CISG that specifically refers to situations, where as a result of radically changed circumstances, the performance of one of the parties has become much more onerous and difficult. This problem, therefore, has to be considered in the context of Article 79. [13]So, the problem is solved by direct reference to domestic laws. The reference to domestic laws in interpreting Article 79 jeopardizes uniformity in the application of the Convention. This uniformity is the Convention's major goal, as set out in Article 7(1). The fact that Article 79 presents problems of application might tempt one to consider solving that problem by applying Article 7(2). Article 7(2) permits recourse to the applicable law by virtue of the rules of private international law when questions are not expressly settled by the CISG. The problem of hardship could thus be regulated by rules of domestic law if there was a gap in the CISG regarding the promise’s invocation of radically changed circumstances, making its performance more onerous.

To avoid the problem of undermining this objective of the CISG, it has been suggested that a comparative law approach be applied in interpreting Article 79. This approach seeks guidance from the prevailing patterns and trends of modern domestic law insofar as they are consistent with the necessities of international trade.[14] The approach is supported by the fact that comparative studies, stimulated in part by the Convention, are proceeding apace. However, the idea of a comparative law approach is subject to criticism. Although it may prove rewarding in other circumstances, it would yield only limited results in the present case since no specific overall trend may be traced.

4-Force majeure and hardship under Ethiopian law

 Ethiopian civil code article 1791 states that the party who fails to perform his obligations shall be liable to pay damages notwithstanding that he is not at fault and he shall not be released unless he can show that performance was prevented by force majeure. Then from the provision we can conclude that party doesn’t liable in the case force majeure for the non performance the contract. The law could also define the condition that happen force majeure under article 1792.  Article 1792(1) state that force majeure results from an occurrence which the debtor could normally not foresee and which prevents him absolutely from performing his obligations. The law also list out the cases of force majeure and non force majeure cases under article 1773 and 1974. Pursuant to the provision the causes of force majeure are the unforeseeable act of a third party, an official prohibition preventing the performance of the contract, a natural catastrophe such as an earthquake, lightning or floods, international or civil war, the death or a serious accident or unexpected series illness of the debtor. The law also stipulate unless otherwise expressly agreed the party some condition are not considered as a force majeure that is strike or lock-out taking place in the undertaking of a party or
affecting the branch of business in which he carries out his activities, an increase or reduction in the price of raw materials necessary for the performance of the contract, the enactment of new legislation whereby the obligation of the debtor become more onerous.

The situation of hardship is explained under Ethiopian civil code. Article 1764 Ethiopian civil code states that contract shall remain in force notwithstanding that the conditions
of its performance have changed and the obligations assumed by a party have become more onerous than he foresaw. The effect of such changes may be regulated by the parties, and not
by the court, in the original contract or in a new agreement. When making the contract or there after, the parties may agree to refer to an arbitrator any decision relating to variations which ought to be made in the contract, should certain circumstances occur which would
modify the economic basis of the contract. But there is some exception in a case of contracts with a public administration. Article 1767  The court may vary a contract made with a public administration where the circumstance in which it was made have changed through an official decision in consequence of which the obligations assumed by the party who contracted with the administration have become more onerous or impossible.

5-Conclusion and Recommendation

As discusses hardship and force majeure is the exception to the general and universally accepted principle of "pacta sunt servanda." Force majeure and hardship create when situations of changed circumstances happen to perform a contract. In the case of force majeure the performance of a contract is impossible at least in temporarily but in the case of hardship constitutes a reason for a change in the contractual program of the parties. So in the case of hardship the aim of the parties remains to implement the contract.

The approach of municipal legal systems to the problem of changed circumstances varies from country to country and law to law. In these term paper tried to compare how to solve the changed circumstance under Ethiopian law and UNCSG. Under Ethiopian law, the line is drawn between the impossibility of the performance on the one hand, i.e., force majeure, and, on the other hand, circumstances which destabilize the contract where economic conditions are such that fundamental and far-reaching changes occur. Then in Ethiopian law properly stipulate about force majeure and hardship but UNCISG doesn’t stipulate anything about hardship. Under article 79 UNCISG the defense of force majeure can raise both the buyer and seller but in Ethiopian law the debtor raise the defense of force majeure. Article79 of UNCISG deeply explain about force majeure. UNCISG doesn’t clear why leave out about hardship. The problem of hardship has thus been considered during the drafting process of Article 79, but a provision which specifically dealing with it has been deliberately omitted from the CISG.  Resort to domestic laws is precluded by Article 7(2). If the domestic law applicable under conflicts rules were applied to fill a supposed gap, there would be a danger of the CISG's liability system "bursting." This is due to the fact that domestic legal systems differ greatly from each other in regard to rules of hardship. Some legal systems have not accepted hardship as an excuse for non-performance. As a result of this fact and the unwillingness of courts and legislatures in many countries to assist parties in modifying their contracts to fit fundamentally changed circumstances, hardship clauses have been introduced into these contracts. The CISG has not resolved the existing problems. So the writer recommendeds that UNCISG for the sake of uniformity, simplicity and efficiency the contract contain only one clause covering the problem of changed circumstances.

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[1]  A.H. Puelinckx, Frustration, Hardship, Force majeure, imprévision, Wegfall der Geschäftsgrundlage, Unmöglichkeit, Changed Circumstances, 1986 J. Int'l Arb. 47 (1986).

[2] Ibd

[3]  Matsoukis v. Priestman & Co, 1 K.B. 681 (Eng. 1915).

[4] Returned Soldiers, etc. League of Australia Incptd. v. Abbott, S.A.St.R. 270 (Austl. 1946).

[5] Ibid

[6] Ibid

[7]  Fritz Enderlin & Dietrich Maskow, United Nations Convention on Contracts for the International Sale of Goods 320 (1992)

[8] Ibid

[9] Ibid

[10]  Denis Tallon, in Commentary on the International Sales Law - The 1980 Vienna Sales Convention 576 (C.M. Bianca & M.J. Bonnell eds.,1987)

[11] Ibid

[12]  Ziegler, Leistungsstörungsrecht nach dem UN-Kaufrecht 218 (1995); Keil, Die Haftungsbefreiung des Schuldners im UN-Kaufrecht 33 (1993).

[13] Supra note numbe 10 pp.320

[14] Ibid