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Chapter 1 Introduction1

1 Force Majeure and Hardship in International Commercial Transactions1

2 General Principles of Commercial Contracts：Methodological Approach9

Chapter 2 Scope of Application of General Contract Principles23

3 General Remarks on the Governing Law and the Application of General Contract Principles23

4 Choice of Law Agreement Providing for the Application of a National Law28

5 No Choice of Law Made by the Parties43

Chapter 3 The Concept of Non-performance57

6 The Concept of Non-performance Under General Contract Principles57

Chapter 4 Force Majeure Excuse75

7 The Force Majeure Excuse as a General Principle of Law75

8 Individual Requirements of the Force Majeure Excuse Under General Contract Principles110

9 Legal Effects of the Force Majeure Excuse345

10 Interpretation and Effects of Force Majeure Clauses383

Chapter 5 Hardship (Change of Circumstances)：Fundamental Change of the Equilibrium of the Contract391

11 Hardship as a General Principle of Law391

12 Individual Requirements of the Hardship Defence420

13 Legal Effects of Hardship479

14 Interpretation and Legal Effects of Hardship Clauses512

15 Hardship Distinguished from Other Remedies517

Chapter 6 Conclusion533

Bibliography537

Principles on Force Majeure in the CISG，UPICC，PECL，the TLDB-Principles and ICC Force Majeure Clause 2003563

Principles on Hardship in the UPICC，PECL，the TLDB-Principles and ICC Hardship Clause 2003569

Index573

Acknowledgements21

List of Abbreviations23

Chapter 1 Introduction1

1 Force Majeure and Hardship in International Commercial Transactions1

Ⅰ The Need for Transnational Instead of Domestic Rules in the Context of International Commercial Transactions1

Ⅱ The Need for Predictable Rules6

Ⅲ The Objective：Establishing Specific Standards and 'Case Groups' for the Different Elements of the Exemptions under Review8

2 General Principles of Commercial Contracts：Methodological Approach9

Ⅰ The Traditional Lex Mercatoria Doctrine，Its Deficiencies and the Distinct Concept of General Contract Principles9

A The Deficiencies of the Traditional lex mercatoria Doctrine9

B The Emergence of the New，New lex mercatoria11

C The Concept of General Contract Principles12

Ⅱ General Principles of Law Method14

A Introduction14

B Prima Facie Evidence of General Contract Principles17

1 The CISG17

2 Soft Law Codifications，Particularly the UPICC19

Chapter 2 Scope of Application of General Contract Principles23

3 General Remarks on the Governing Law and the Application of General Contract Principles23

Ⅰ Introduction23

Ⅱ The Parties’ Authority to Provide for the Application of General Principles of Law24

Ⅲ The Appropriateness for the Parties to Select General Principles of Law beyond Their Use As a Means of Interpreting and Supplementing a National Law or the Terms of the Contract26

4 Choice of Law Agreement Providing for the Application of a National Law28

Ⅰ Interpreting and Supplementing the Applicable National Law and the Terms of the Contract by General Contract Principles28

A Introduction28

B Comparative Method of Construction under the Applicable Domestic Law32

C Autonomous Basis：Specificity of International Transactions and International Arbitration in Particular-Application of the Domestic Law with a ‘Broader Brush’33

D Distinguishing between the Concept of International Trade Usages and General Principles of Law36

E Limits of the Use of General Contract Principles As a Means of Interpreting Domestic Law or the Terms of the Contract38

F The Practical Significance of Interpretation and Gap-Filling of Domestic Law in the Light of the ‘Force Majeure’ and ‘Hardship’ Exemptions39

Ⅱ Interpreting and Supplementing International Uniform Law Instruments with General Contract Principles，in Particular the CISG41

5 No Choice of Law Made by the Parties43

Ⅰ Authority to Apply General Contract Principles in the Absence of a Choice of Law：‘Rules of Law’；‘Voie Directe’；Review of Awards by State Courts43

A ‘Rules of Law’ versus a National System of Law43

B ‘Voie directe’：Direct Choice Method44

C Awards Made in Application of General Principles of Law in the Absence of a Choice of Law by the Parties Have Survived Judicial Challenge45

Ⅱ Different Options as to How General Contract Principles May Be Applied or Taken Into Account in the Absence of a Choice of Law by the Parties48

A General Contract Principles as a Means of Interpreting and Supplementing the Applicable National Law48

B Concurrent Application of General Contract Principles in Conjunction with a National Law49

C Application of General Contract Principles Supplemented with the Law of a Particular State：Comparison with the tronc commun Doctrine50

D Selection of General Contract Principles As the Governing Law： ‘Centre of Gravity Test’ and Negative Choice of Law51

Chapter 3 The Concept of Non-performance57

6 The Concept of Non-performance Under General Contract Principles57

Ⅰ Main Features of the Concept of Non-performance57

A Overview57

B Definition of Non-performance：Breach of Contract58

Ⅱ The Concept of Strict Contractual Liability：No Fault Requirement61

A The Concept of Strict Liability under General Contract Principles61

B The Concept of Strict Liability in Common Law and the Relevance of Fault for Contract Excuses62

C The Concept of Liability Based on Fault in Civil Law and Its Restrictions65

D Conclusion68

Ⅲ The Requirement of Non-performance in Particular：Distinction between Obligations of Best Efforts and Obligations to Achieve a Specific Result70

Chapter 4 Force Majeure Excuse75

7 The Force Majeure Excuse as a General Principle of Law75

Ⅰ Salient Features of the Force Majeure Excuse Under General Contract Principles75

Ⅱ Recognition of the Force Majeure Excuse as a General Principle of Law77

A Overview of Standards in Domestic Laws77

1 Impossibility of Performance77

a In Civil Law Systems77

b The Concept of the Revised German BGB in Particular80

c Evaluation：The Decline of the Concept of Impossibility in Connection with Damages Claims87

2 Frustration of Contract (English Law)88

a Introduction88

b Legal Basis of Doctrine89

c Legal Effects of Frustration90

d Basic Features of the Doctrine of Frustration and Different Groups of Cases91

e Impracticability Not Covered by the Doctrine of Frustration93

f Evaluation93

3 Standards Adopted in the United States94

a Impracticability94

b Frustration of Purpose97

c Evaluation98

B Article 79 CISG and Its Reception by Domestic Laws，the UPICC，the PECL and Contract Practices101

1 Article 79 CISG and Article 74 ULIS as Its Predecessor101

2 Reception of the Standard of Article 79 CISG by Domestic Laws：The Example of China105

3 Reception of the Standard of Article 79 CISG by the UPICC/PECL106

4 Compatibility of the Standard of Article 79 CISG with Contract Practices (Force Majeure Clauses)107

C Conclusion108

8 Individual Requirements of the Force Majeure Excuse Under General Contract Principles110

Ⅰ Introduction110

A Scope of Application of the Force Majeure Excuse：Non-performance of a Contractual Obligation110

B The Requirements and Legal Effects of the Force Majeure Excuse in a Nutshell111

C Exemption Due to Interference by the Other Party and Force Majeure113

Ⅱ Contractual Assumption or Limitation of the Risk of the Occurrence of Certain Impediments116

A Prevalence of a Contractual Risk Allocation：Typical Sphere of Control of the Obligor，Contractual Amendments and Risk Allocation116

B Typical Situations of Explicit or Implicit Contractual Risk Assumption or Exclusion or Limitation of a Particular Risk118

1 Explicit or Implicit Risk Assumption118

a Express Undertakings，Guarantees，Adaptation Clauses118

b Narrow or Broad Interpretation of a Clause Allocating the Risk of the Occurrence of a Specified Event122

c Typical Situations of Implicit Risk Assumption：Foreseeable Contingencies；Speculative Nature of the Transaction；the Supplier’s Performance Obligation Includes an Inherent Risk (Technological Breakthrough Cases)；the Buyer’s Risk to Use the Purchased Goods As Intended；Risk Assumption by the Buyer Furnishing the Seller with Specifications；CIF-Contracts and Fluctuations in Freight Rates124

2 Assumption of the Risk to Obtain an Import or Export Licence or Other Authorization by a State Authority126

a Introduction126

b Identification of the Party Responsible for Obtaining a Required Authorization127

c Standard of Duty/Assumption of Risk and Consequences129

3 Implicit Assumption of a Risk on the Basis of the Economic Principle of the Superior Risk Bearer？143

4 Explicit or Implicit Exclusion or Limitation of a Particular Risk147

a Overview147

b Clauses Limiting the Seller’s Procurement Risk，Especially Delivery-against-Supply Clauses148

c Requirements and Output Contracts149

d Clauses Excluding or Limiting the Liability in General and Their Validity (Exemption and Exculpatory Clauses)150

C Unforeseeability of the Impediment (Could Not Reasonably Be Taken into Account)156

1 Foreseeability and Risk Allocation156

2 Three-Step Approach; Examples158

3 Changes of Law in Particular165

Ⅲ Impediments Beyond the Typical Sphere of Risk and Control of the Obligor167

A Typical Sphere of Control of the Obligor：Responsibility for Its Own Organization，for the Measures to Be Taken to Perform the Contract，Responsibility for Its Own Personnel；Strikes；Financial Ability167

B Typical Risk of the Seller：Procurement Risk in Case of Generic Goods171

1 The Notion of Procurement Risk，Limitation and Legal Effects171

2 Contractual Limitation of the Procurement Risk；Delivery-against-Supply Clauses175

3 Contract Interpretation with Regard to the Contractually Agreed Source(s) of Performance180

C Responsibility for ‘Independent’ Third Parties (Subcontractors，Suppliers)185

D Typical Risk Allocation in Case of Non-conformity of Goods Sold189

E Typical Risk Allocation in Case of Building Contracts194

1 Destruction of a Building or Work in Course of Construction；Impossibility of Completion195

2 Lump Sum Prices (Fixed Prices)：Allocation of the Risk of Price Increases or Decreases203

Ⅳ Impediments206

A Typical Impediments beyond the Obligor’s Control：Acts of Public Authority，Armed Conflicts，Acts of God，Fire，Explosion，General Labour Disturbances and the Like206

B Economic ‘Unaffordability’ or ‘Unreasonableness’of Performance213

1 Practical Considerations215

2 Legislative History of the CISG216

3 Conclusions Regarding the Treatment of Hardship Situations under the CISG218

4 Relationship with the Hardship Defence221

a Decrease in the Value of the Performance Received by the Other Party Fails Exclusively under the Hardship Exemption222

b Increases in Cost of Performance Also Fall，in Principle，under the Hardship Exemption222

c Exception：The Obligor Is Excused from Rendering Specific Performance Where the Events Leading to an Excessive Increase in the Cost of Performance Do Not Affect the Obligee’s Performance Interest223

d Conclusion：Legal Consequences of the Hardship Exemption Should Generally Prevail225

e Illustration226

C Impediments Existing at the Time of the Conclusion of the Contract (Initial or Antecedent Impediments)227

1 The Treatment of Initial Impediments in Domestic Laws227

a Traditional Approach in Civil Law Systems Based on the Roman Law Rule‘impossibilium nulla obligatio’227

b Modern Trend in Civil Law，Particularly the Concept of the New German Law228

c Common Law Approach231

d Approach under General Contract Principles232

2 Initial Impediments and the Rules on Mistake Distinguished235

a General Considerations235

b Hardship and the Rules on Mistake238

c Mistakes about the Future241

3 Invalidity of Contracts Due to Illegality and Force Majeure/Hardship Events Distinguished242

D Temporary and Partial Impediments246

1 Temporary Impediments246

a Equation of Temporary Impediments with Permanent Impediments in Comparative Law251

b Equation of Temporary Impediments with Permanent Impediments under General Contract Principles257

(1) Probable duration of the impediment257

(2) Interests of the obligor257

(3) Interests of the obligee258

(4) Relevant point in time for the assessment258

c Legal Consequences of a Temporary Impediment Which Is to Be Equated with a Permanent Impediment259

2 Partial Impediments260

Ⅴ Legal Impediments (Acts of Public Authority) in Particular263

A Overview263

B Mandatory Rules of Law in International Arbitration265

1 Competence of Arbitral Tribunals to Apply Mandatory Rules (Arbitrability)，Enforceability of Awards in Disregard of Mandatory Rules267

2 Consideration of Mandatory Rules by Arbitral Tribunals As to the Substance of a Case：Two Categories of Cases269

C Application and Impact of Transnational Public Policy Rules274

1 Direct Application of Transnational Public Policy Rules，Especially in Connection with the Issue of Contract Validity274

a Mandatory Rule Causes the Invalidity of the Contract in Whole or in Part275

b Mandatory Rule May Justify the Termination of the Contract277

c Impact of Mandatory Rules on the Extent of Damages，the Status of a State-Owned Company，or the Prohibition by Certain Islamic Countries to Pay Interest on Outstanding Debts (Examples)278

2 Validity and Interpretation of Agreements to Disregard Mandatory Rules279

D Force Majeure Excuse and Mandatory Rules：Relevant Criteria and Examples281

1 General Rule：Consideration of Mandatory Rules as a Factual Element281

2 Unilateral Prohibitions of Trading and Conflicting Mandatory Rules：Preference to the Rule Permitting Performance at the Place Where Specific Performance Can Be Rendered284

3 Criteria for the Consideration of an Act of Public Authority under the Force Majeure Excuse289

a Overview289

b Examples Regarding the Requirement of a Close Connection292

c Example Regarding a Work Subcontract (Allocation of Risk between Main Contractor and Subcontractor)294

(1) Application of the embargo legislation ratione materiae to the subcontract295

(2) Permanent impediment295

(3) Obligation of the main contractor to compensate the subcontractor for the work already performed296

E Involvement of States or State Enterprises (State Arbitrations)296

1 Guidelines According to Which an Act of Public Authority Is Attributable to a State Enterprise296

2 Examples304

a Czarnikow Ltd v. Rolimpex (State Enterprise Excused)304

b Krupp-Koppers GmbH v. Kopex (State Enterprise Not Excused)307

c Jordan Investment Ltd. v. Sojuznefteksport (State Enterprise Excused)310

3 Expropriation As a Distinct Concept312

4 Force Majeure and State of Necessity under the ILC Draft Articles on the Responsibility of States for Internationally Wrongful Acts314

Ⅵ Unforeseeable， Unavoidable and Unsurmountable Impediments320

A Unforeseeable Impediments320

B Unavoidable and Insurmountable Impediments320

1 Introduction320

2 Commercially Reasonable Substitute Performance323

3 The Risk Allocation under CIF-Contracts329

a Extra Costs of Shipping329

b CIF-Contracts and Export Prohibition；Duty to Overcome the Impediment and to Buy Afloat332

4 Groups of Cases Where the Typical Risk Structure of the Contract Limits the Duty to Overcome an Impediment (Sales Contracts of Specified Goods；Lease Contracts；Storage Contracts)333

a Sales Contracts for Specific Goods：Limitation of the Obligation to Overcome an Impediment As a Result of the Typical Contractual Risk Allocation334

b Lease Contracts337

c Storage Contracts338

Ⅶ Requirement of a Causal Link between the Impediment and the Non-performance340

Ⅷ Notice Requirement342

9 Legal Effects of the Force Majeure Excuse345

Ⅰ Overview345

Ⅱ Exclusion of the Right to Claim Damages；Penalties，Liquidated Damages；‘Surrogate Benefits’347

A Exclusion of the Right to Claim Damages and Application to Penalties or Liquidated Damages347

B Doctrine of ‘Surrogate Benefit’349

C Excursus：Note on Other Defences to a Claim for Damages352

Ⅲ Exclusion of the Right to Claim Specific Performance358

A Introduction358

B Approach under General Contract Principles360

C Article 79(5) CISG and the (Non-)exclusion of the Right to Performance360

D Termination upon Allowance for Extra Time for Performance；Request for Repair or Delivery of Substitute Goods366

Ⅳ Unaffected Remedies366

A The Right to Terminate and the Legal Consequences366

1 In General366

2 Notice Requirement：No ipso facto Termination and Exception in case of Excused Permanent and Total Impediments368

3 Effects of Termination373

B Withholding Performance376

C Price Reduction377

D Interest on Money Due377

Ⅴ Burden of Proof382

10 Interpretation and Effects of Force Majeure Clauses383

Chapter 5 Hardship (Change of Circumstances)：Fundamental Change of the Equilibrium of the Contract391

11 Hardship as a General Principle of Law391

Ⅰ Salient Features of the ‘Hardship’ Defence under General Contract Principles391

A Introduction391

B Salient Features of the Hardship (Change of Circumstances) Defence under General Contract Principles396

Ⅱ Recognition of the Hardship Defence as a General Principle of Law401

A General Approach in Civil Law401

B Common Law407

C ‘Frustration of Purpose’ As a Sub-category of a Fundamental Alteration of the Equilibrium of the Contract411

D International Law413

E Arbitration Practice414

F Conclusion418

12 Individual Requirements of the Hardship Defence420

Ⅰ Introduction420

A General Relevance of the Force Majeure Requirements420

B Distinguishing between the Concept of Implied Terms and Hardship421

Ⅱ Circumstances Beyond the Control and Sphere of Risk of the Obligor Bringing about a Fundamental Alteration of the Equilibrium of the Contract423

A Contractual Assumption or Limitation of the Risk of the Occurrence of a Change of Circumstances423

B Percentage of the Cost or the Value of the Performance Likely to Amount to a ‘Fundamental’Alteration of Equilibrium of the Contract (Threshold Test of the Hardship Exemption)426

1 The Usefulness of a Threshold Test As a Basic Yardstick426

2 Overview of Percentages Referred to in Domestic Legal Systems428

a English Law and the Doctrine of Frustration of Purpose428

b American Law429

c German Law and Other Civil Law Jurisdictions430

3 Relevant Percentages As a Reference Point under General Contract Principles431

a General Rule：100% Alteration Required；Calculation431

b Impending Financial Ruin of the Obligor435

C Long-Term Contracts in Particular438

1 Risk Allocation438

2 Examples of Risk Assumption in International Investment Contracts：The CMS Gas Award and the Himpurna Award441

a CMS Gas Transmission Company v.The Argentine Republic441

b Himpurna California Energy Ltd. (Bermuda) v.PT. (Persero) Perusahaan Listruik Negara (Indonesia)445

3 Inflation in Particular451

a Introduction451

b Creeping Inflation；Escalator and Index Clauses452

c Relationship between Escalator Clauses and the Hardship Exemption455

d Cases Involving Extreme Inflation458

D Point of Reference in Case of Complex，Long-term or Instalment Contracts461

1 Relevancy of the Entire Undertaking461

2 Application to Long-Term or Instalment Contracts462

Ⅲ Frustration of Purpose as a Particular Group of Cases of Hardship464

A Introduction464

B Distinguishing between Different Groups of Cases466

1 Cases Where the Purpose of the Contract Is Achieved or Frustrated before Performance Can Be Effected (‘Zweckerreichung’；‘Zweckfortfall’)466

2 Non-conformity of Goods Sold468

C The Requirement of a ‘Joint Purpose’468

D Requirement That the Frustration of Purpose Be Nearly Total and That It Cannot Be Reasonably Overcome474

E Provisional or Temporary Character of Frustrations of the Purpose，in Particular in Case of Changes of the Law477

13 Legal Effects of Hardship479

Ⅰ Overview479

Ⅱ Duty to Renegotiate480

A Legal Nature and Consequences in Case of Infringement480

B Contents of the Duty to Renegotiate485

C Exercise of the Right to Request Renegotiations486

D No Withholding of Performance by the Aggrieved Party as a Consequence of a Request for Renegotiation487

E A Party’s Right to Resort to the Court upon Failure to Reach Agreement；Determination of Time When Renegotiation Failed；Suspension of Court Proceedings488

Ⅲ Courts’ and Arbitrators’ Power to Adapt the Contract490

A The Court’s or Arbitral Tribunal’s Power to Adapt the Contract as a Matter of Substantive Law：Recognition as a General Principle490

1 Civil Law490

2 Common Law491

3 Conclusion492

B The Arbitrators' Power to Adapt the Contract under the lex arbitri493

C The Mechanism of Contract Adaptation498

D Procedural Aspects；in Particular Significance of the Relief Sought502

E Comparison of the Procedural Aspects under the General Approach with the Approach Taken by Italian Law and the ICC Hardship Clause 2003506

Ⅳ The Right to Request Termination of the Contract508

A General Remarks508

B Relationship with the Right to Request Adaptation of the Contract509

C Termination of the Contract at a Date and on Terms to Be Determined by the Court510

14 Interpretation and Legal Effects of Hardship Clauses512

15 Hardship Distinguished from Other Remedies517

Ⅰ Avoidance of Contract for Relevant Mistake517

Ⅱ Termination of Relational Long-term Contracts for ‘Irreconcilable Differences’ (‘Good Cause’；‘Valid Reasons’)517

A Introduction517

B Relationship with the Hardship Concept/Doctrine of Change of Circumstances520

C Basic Features of the Right to Terminate for Irreconcilable Differences521

1 Scope of Application521

a Long-Term or Relational Contracts521

b Termination for Fundamental Non-performance As a Distinct Remedy525

2 Irreconcilable Differences (‘Good Cause’) in Case of Partnership Agreements525

a Swiss Law253

b American Case Law528

c The Case of Arthur Andersen v. Andersen Consulting530

Chapter 6 Conclusion533

Bibliography537

Principles on Force Majeure in the CISG，UPICC，PECL，the TLDB-Principles and ICC Force Majeure Clause 2003563

Principles on Hardship in the UPICC，PECL，the TLDB-Principles and ICC Hardship Clause 2003569

Index573