‘Force Majeure’ Clause in Contracts with American Companies

By Merovitz Potechin on Thursday April 30, 2020.

The United Nations Convention on Contracts for the International Sale of Goods – The CISG – contains a Force Majeure clause and it is important to know about it if you have a contract with an American company where COVID-19 has impeded performance of the contract.

Article 79(1) of the CISG states:

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.

Essentially, then, if COVID-19 has impeded performance under your contract, you may be able to rely on Article 79(1) to negate a potential claim for breach of contract.

What is the CISG

The CISG is the law that governs contracts between private buyers and sellers that conduct their primary business in different countries.

The CISG applies when:

1. There is a contract for a sale of goods between two private parties;
2. Those parties’ places of business are in different States; and
3. Those States have adopted the CISG.

Currently 84 States have adopted the CISG. Along with Canada, some notable States which have adopted the CISG include the United States, Mexico, Brazil, China, Iraq, Israel, Italy, Germany, and France.

For a complete list see: https://www.cisg.law.pace.edu/cisg/countries/cntries.html

Therefore, for example, if you have a contract for the sale of goods with a company in the United States, then by default the CISG applies as the law that governs your contract.

The Purpose

The stated purpose of the CISG is to “provide a modern, uniform and fair regime for contracts for the international sale of goods. Thus, the CISG contributes significantly to introducing certainty in commercial exchanges and decreasing transaction costs” (United Nations Statement on the CISG).

It allows parties, regardless of the State they are conducting business in, to understand and have certainty regarding the law that applies to their contract when dealing internationally.

Concerns

Many parties, however, are unaware that the CISG applies, let alone even exists, but it is vital to know that it applies to any dealings that meet the above criteria.

The CISG governs formation of a contract, delivery obligations, payment obligations, inspection obligations, and the remedies available in the event of a contractual breach.

However, not being aware that the CISG applies means that as a buyer or a seller, you might not conduct yourself according to the CISG and leave yourself open to a breach, or an inability to claim damages if the other party breaches.

Opting Out

Contracting parties can opt out of the CISG in part or in whole. This is allowed; however, it may not be advisable and should not be the parties’ default. It is important to understand how the CISG applies, how it affects your obligations while performing your contractual duties, and the mechanisms available if there is a breach of contract.

If you have any questions about the CISG, cross-border contracts or how COVID-19 affects performance of a contract, contact the litigation team at Merovitz Potechin LLP.