A 2019 judgment by the Higher Regional Court of Düsseldorf (only in German) (Judgment of 4 July 2019, Case No: 6 U 2/19) is gaining new relevance due to the COVID-19 pandemic and, in no small part, in light of the flooding in Western and Central Europe in July of this year. The case largely involved the question of liability in the event of force majeure” in cases where the United Nations Convention in the International Sale of Goods (CISG) (only in German) applies.
Facts of the case
In the underlying case, a buyer ordered one million bulbs in order to grow four-leaf clovers. The seller purchased the bulbs from its supplier, but about 90% of the bulbs were destroyed in a fire at the supplier’s premises before they could be delivered to the seller. A replacement for the lost bulbs could not be found anywhere in the global market, so only 60,000 bulbs were delivered to the buyer.
In the course of the ensuing proceedings, the buyer sought damages from the seller in the amount of EUR 30,469.10 for its failure to deliver the bulbs. The buyer’s complaint was dismissed at trial by the District Court of Düsseldorf.
Decision by the Higher Regional Court
The Higher Regional Court of Düsseldorf dismissed the buyer’s appeal as unfounded. The court based its decision on the CISG, which was applicable to the contract.
Specifically, the court stated that the seller was not required to pay compensation for damages in accordance with Article 79(1) of the CISG. The necessary criteria for such a requirement were not met, in the court’s view, since the fire represented an impediment to delivery which the seller was unable to avoid or overcome.
Legal situation under the CISG
In accordance with Article 74 of the CISG, sellers are required to pay damages in case of breach of contract (e.g. non-delivery).
In accordance with Article 79 of the CISG, however, the seller is exempt from the requirement to pay damages if it can show that the impediment was out of its control and that it was not foreseeable at the time the contract was entered into (“force majeure”).
Natural events such as floods and fires are typically regarded as impediments in terms of this statute, although examination is required in each individual case. Epidemics and pandemics, as well as actions by government authorities, may also constitute impediments in this regard.
Article 79 of the CISG also applies only if the impediment cannot be overcome, which applies not to the impediment itself, but rather to the actual breach of contract. This makes it more difficult for the seller to present exonerating evidence, given that the seller bears the procurement risk even in case of force majeure. The relevant debtor (in this case the seller) is required to take measures in order to comply with its contractual duties in spite of the force majeure. However, the procurement risk for an obligation in kind is exceeded if the goods in question are not available on the market, or can be obtained only at a disproportionately high cost. The debtor is therefore required to show that it has exhausted all measures which come into consideration and that it is nevertheless unable to comply with its contractual duties.
It should be kept in mind that, under Article 79 of the CISG, the seller is only exempt from paying damages. The buyer generally still retains its claim to performance, as well as its other rights, such as e.g. its right to void the contract (Article 49 of the CISG) and to reduce the price (Article 50 of the CISG).
Conclusion
Unlike the national provisions in German law (e.g. the Civil Code and the Commercial Code), Article 79 of the CISG contains a specific provision which may exempt a debtor from its duty to pay damages in case of force majeure. But aside from the requirements described above, this provision can only benefit the debtor in any individual case if the CISG applies to the contractual relationship in question.
Application of the CISG is still excluded in many contracts, but this practice should be reconsidered in light of the advantages indicated in this judgment. The disadvantages associated with the CISG are frequently cited by those arguing against application of the CISG, but one may counter that most of those disadvantages can be mitigated or excluded entirely by means of contractual provisions.
With respect to Article 79 of the CISG, this also applies to the requisite and highly strict criteria for obtaining an exemption from the requirement to pay damages.
For an overview of the legal situation in accordance with the national provisions of German law, please see the news article we have already published in this regard.