The Relevance of the CISG in Settling International Arbitration Claims Arising due to COVID-19 in Absence of Force Majeure and Hardship Clauses - WAMR - 2019 Vol. 13, No. 2
Originally from World Arbitration and Mediation Review (WAMR)
The incentive for parties to argue for the application of the United Nations Convention on Contracts for the International Sale of Goods (hereinafter “CISG”) in arbitral proceedings stems from its broad-reaching list of remedies and defenses. Compared to domestic law, the CISG is better suited for settling international disputes. Further, with respect to the granting of relief, the CISG is perceived as a compromise between common-law and civil-law jurisdictions. Moreover, the CISG is regarded as a contract-law code that offers a series of default rules for filling gaps in contracts and assisting in their interpretation.
Nevertheless, while the CISG has increasingly become an opt-out instrument in practice, and an opt-in agreement in international arbitration, their interaction has led to a return to favor of the CISG. Data collected through empirical research shows that international arbitral tribunals tend to apply the CISG without hesitation and have extended its application to settle trade-related disputes by applying its remedies, defenses and exemptions from liability.
In the absence of force majeure and/or hardship clauses or when domestic law fails to prescribe such exemptions from liability, the applicability of the CISG becomes paramount for the prospect of many claims. Further, the applicability of the CISG has become even more relevant in the current environment created by the COVID-19 pandemic, where the performance of contractual obligations and undertakings may well be deemed impossible, impractical, or unreasonably onerous based upon the occurrence of unforeseen circumstances or events beyond the control of the parties. The CISG’s relevance can also come into play in contract disputes where the parties have agreed on force majeure and/or hardship clauses because CISG-related case law provides guidelines for the clauses’ interpretation and application.
Both the UNIDROIT Principles of International Commercial Contracts (“UNIDROIT PICC”) and the Principles of European Contract Law (“PECL”), albeit deemed ‘soft’ precepts, must be used as gap-fillers and are an invaluable supplemental source for the interpretation of the CISG.