INTERNATIONAL SALES LAW - seminar 2004 ISL Contractual Risk Management in Transnational Sales Transactions ISL: objectives, functions and structure Management of information on ISL Management of risk of contractual disputes Management of risk of contract breach Management of risk of loss of or damage to the goods Management of risk of changed circumstances Case study Case studies I II V VI VII IX IV VIII III

CONTRACT LAW CONTRACTING ISC Management of risk of changed circumstances -CISG art. 79 (and and 80-88)CISG CISG art. 79: (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.... Default distribution of the risk in sales law ISL I II V VI VII IX IV VIII III

EXCUSES Liability for external risks Liability for subcontracting Liability for the functioning of one’s own organisation Management of risk of changed circumstances Default distribution of the risk in sales law Scope of the management liability according to CISG art. 79 Firm A ISL I II V VI VII IX IV VIII III Performance management Network management Loss management

Management of risk of changed circumstances Default distribution of the risk in sales law Scale of the management liability according to CISG art CISG art. 74: Damages for breach of contract by one party consists of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the other party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract. CISG art. 77: A party who relies on a breach of contract must take measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated. CISG art. 75: substitute transaction and damages for price difference art. 76: damages when no substitute transaction is made ISL I II V VI VII IX IV VIII III

SALES LAW CONTRACTING ISC Management of risk of changed circumstances -PECL art. 6:111, 8:108, 8:109 (and chapter 9)PECL -UPICC art , 7.1.6, (and ch. 7)UPICC -CENTRAL TLDB No. IV.5.7, VI.3, VIII.1, IX.3 and IX.4CENTRAL TLDB Default distribution of the risk in contract law UPICC ARTICLE (Force majeure) (1) Non-performance by a party is excused if that party proves that the non-performance was due to an impediment beyond its control and that it 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) When the impediment is only temporary, the excuse shall have effect for such period as is reasonable having regard to the effect of the impediment on the performance of the contract. (3) The party who fails to perform must give notice to the other party of the impediment and its effect on its 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, it is liable for damages resulting from such non-receipt. (4) Nothing in this article prevents a party from exercising a right to terminate the contract or to withhold performance or request interest on money due. ISL I II V VI VII IX IV VIII III

SALES LAW CONTRACTING ISC Management of risk of changed circumstances Default distribution of the risk in contract law -PECL art. 6:111, 8:108, 8:109 (and chapter 9) -UPICC art , 7.1.6, (and ch. 7) -CENTRAL TLDB No. IV.5.7, VI.3, VIII.1, IX.3 and IX.4 PECL Article 6:111: Change of Circumstances (1) A party is bound to fulfil its obligations even if performance has become more onerous, whether because the cost of performance has increased or because the value of the performance it receives has diminished. (2) If, however, performance of the contract becomes excessively onerous because of a change of circumstances, the parties are bound to enter into negotiations with a view to adapting the contract or terminating it, provided that: (a) the change of circumstances occurred after the time of conclusion of the contract, (b) the possibility of a change of circumstances was not one which could reasonably have been taken into account at the time of conclusion of the contract, and (c) the risk of the change of circumstances is not one which, according to the contract, the party affected should be required to bear. (3) If the parties fail to reach agreement within a reasonable period, the court may: (a) end the contract at a date and on terms to be determined by the court ; or (b) adapt the contract in order to distribute between the parties in a just and equitable manner the losses and gains resulting from the change of circumstances. In either case, the court may award damages for the loss suffered through a party refusing to negotiate or breaking off negotiations contrary to good faith and fair dealing. CENTRAL TCL database No. IX.4 - Distribution of currency risk The distribution of the currency risk follows from Art. VIII (2)(b) IMF-Agreement ISL CENTRAL TCL database No. IX.3 - Nominal-value principle Unless otherwise agreed by the parties, each party bears the risk of currency depreciation (nominal-value principle). I II V VI VII IX IV VIII III

SALES LAW CONTRACTING ISC Management of risk of changed circumstances Default distribution of the risk in contract law -PECL art. 6:111, 8:108, 8:109 (and chapter 9) -UPICC art , 7.1.6, (and ch. 7) -CENTRAL TLDB No. IV.5.7, VI.3, VIII.1, IX.3 and IX.4 PECL Article 6:111: Change of Circumstances (1) A party is bound to fulfil its obligations even if performance has become more onerous, whether because the cost of performance has increased or because the value of the performance it receives has diminished. (2) If, however, performance of the contract becomes excessively onerous because of a change of circumstances, the parties are bound to enter into negotiations with a view to adapting the contract or terminating it, provided that: (a) the change of circumstances occurred after the time of conclusion of the contract, (b) the possibility of a change of circumstances was not one which could reasonably have been taken into account at the time of conclusion of the contract, and (c) the risk of the change of circumstances is not one which, according to the contract, the party affected should be required to bear. (3) If the parties fail to reach agreement within a reasonable period, the court may: (a) end the contract at a date and on terms to be determined by the court ; or (b) adapt the contract in order to distribute between the parties in a just and equitable manner the losses and gains resulting from the change of circumstances. In either case, the court may award damages for the loss suffered through a party refusing to negotiate or breaking off negotiations contrary to good faith and fair dealing. ISL CENTRAL TCL database No. IX.3 - Nominal-value principle Unless otherwise agreed by the parties, each party bears the risk of currency depreciation (nominal-value principle). I II V VI VII IX IV VIII III

CONTRACT LAW SALES LAW ISC Management of risk of changed circumstances Contractual allocation of the risk in contracting practice The ICC Model International Sale Contract ICC Publication No 556 B. GENERAL CONDITIONS Art ”If the parties have agreed upon a cancellation date in Box A-9, the buyer may terminate the Contract by notification to the Seller as regards goods which have not been delivered by such cancellation date for any reason whatsoever (including a force majeure event).” NL 01E GENERAL CONDITIONS for the supply of machinery and other mechanical, electrical and electronic equipment. Grounds for Relief (Force Majeure) ”36. The following circumstances shall constitute grounds for relief if they impede the performance of the contract or makes performance unreasonably onerous: industrial disputes and any other circumstance beyond the control of the parties, such as fire, war, mobilization or military call up of a comparable scope, requisition, seizure, trade and currency restrictions, insurrection and civil commotion, shortage of transport, general shortage of materials, restrictions in the supply of power and defects or delays in deliveries by sub- contractors caused by any such circumstance as referred to in this Clause. The above described circumstances shall constitute grounds for relief only if their effect on the performance of the contract could not be foreseen at the time of formation of the contract.” The ICC Model International Sale Contract ICC Publication No 556 B. GENERAL CONDITIONS Art. 13 Force majeure ( Restating articles in CISG) ”13.3 Without prejudice to article 10.2, a groud for relief under this clause relieves the party failing to perform from liability in damages, from penalties and other contractual sanctions, except the duty to pay interest on money owing as long as and to the extent that the ground subsists If the ground of relief subsists for more than six months, either party shall be entitled to terminate the Contract.” ISL - force majeure -clauses - hardship-clauses - price adjustment -clauses - currency clauses I II V VI VII IX IV VIII III

ISL ISC A+B ICC Model International Sale Contract Manufactured Goods Intended for Resale ICC Publication No 556 CISG Law of the Seller’s country Incoterms UCP 500 ICC Uniform Rules for Collections ICC Uniform Rules for Demand Guarantees ICC Rules of Arbitration INTERNATIONAL SALES LAW - seminar 2004 An example of an international sales contract Lex Mercatoria? PECL? UPICC? Combiterms? ADR? I II V VI VII IX IV VIII III

Go to Case studies