Hardship accepted under the CISG

The Belgian Supreme Court has ruled that circumstances which were not reasonably foreseeable at the time of the conclusion of an agreement and which increase the burden of the agreement disproportionately, can, in certain circumstances, be considered as “an impediment” in the sense of Article 79 of the United Nations Convention on Contracs for the International Sale of Goods, signed in Vienna on 11 April 1980 (the “CISG”).

Facts
 
A French seller and a Dutch buyer entered into successive contracts for the sale and delivery of steel tubes for scaffolding, for delivery to Tongeren (Belgium). In early 2004, given the 70% increase in the market price of steel, the seller asked for the contracts to be re-negotiated for an increased sale price  The parties were unable to come to an amicable agreement, and  so the case went to court in Belgium.
 
The President of the Tongeren Commercial Court (sitting in summary proceedings) ordered, as a provisional measure, that the seller deliver the ordered products to the buyer and that the buyer pay half of the requested price increase.
 
This led the buyer to initiate proceedings on the merits.
 
The proceedings before the Commercial Court
 
In the proceedings on the merits, the Tongeren Commercial Court held that price fluctuations are foreseeable and are part of the business risk assumed by the seller, all the more so in this case because the seller failed to include a price adjustment  clause in the sales contract.
 
The court’s view was that circumstances that do not make a contract impossible to perform  (but which merely render its performance more burdensome) cannot be considered as an impediment in the sense of Article 79 of the CISG.
 
The seller appealed against this judgment.

The proceedings before the Court of Appeal

The Antwerp Court of Appeal’s judgment was radically different.  It implicitly held that the issue at stake was not governed by the CISG and that the question should be governed by the national law applicable to the contract.  By virtue of Article 4 of the Rome Convention of 19 June 1980 on the Law Applicable to Contractual Obligations, French law applied in this case.

French law, and especially the principle of good faith (Article 1135 of the French Civil Code) allowed the parties in such circumstances the right to renegotiate the contract, according to the Court of Appeal.  Therefore the refusal by the buyer to renegotiate the price constituted a breach of contract, as a result of which the seller (who was ordered to deliver by the President of the Commercial Court) was entitled to compensation.

The buyer appealed against this judgment to the Belgian Supreme Court.

The decision by the Belgian Supreme Court (“Cour de Cassation/ Hof van Cassatie”)
 
In a landmark judgment dated 19 June 2009, the Belgian Supreme Court held that Article 79 of the CISG can govern hardship. Changed circumstances which were not reasonably foreseeable at the time of the conclusion of the agreement and which increased the burden of the agreement disproportionately, can, in some circumstances, form an impediment in the sense of Article 79 of the CISG.
 
However, the court noted that the CISG gives no indication as to how hardship issues are to be resolved.
 
In an attempt to bridge this gap, the Court (by virtue of Articles 7(1) and 7(2) of the CISG) referred to the general principles governing the law of international trade, inter alia the Unidroit Principles for International Commercial Contracts, which state that the party who invokes changed circumstances that fundamentally disturb the contractual balance is entitled to claim the renegotiation of the contract.
 
The Supreme Court therefore upheld the judgment of the Court of Appeal, since it had correctly held that the buyer and seller were obliged to renegotiate the contracts.
 
Comment
 
This judgment of the Supreme Court is a landmark decision for two reasons.  First, the Court went out on a limb to the extent that it accepted hardship under Article 79 of the CISG.  Internationally, this is a significant precedent.  Secondly, for the first time in its history, the Supreme Court made reference to the Unidroit Principles of International Commercial Contracts to solve a dispute.  This indicates that its judges are up-to-date with recent economic and legal developments in international trade.