The COVID-19 Pandemic and Force Majeure under the CISG: Lessons from the 2006 Avian Flu

The COVID-19 pandemic is interfering with countless global commercial contracts. The Vienna Convention on the International Sale of Goods (the “CISG”) —which covers two thirds of the world’s cross-border trade in goods—contains a force majeure provision. In the face of the current pandemic, many will wonder whether this force majeure provision will relieve them, or their counterparties, of their contractual obligations. It could be especially relevant where the relevant contract between the parties itself contains no force majeure clause, and the CISG provision thus functions as a backstop.

Insight into how courts and arbitral tribunals may view a force majeure argument during the current pandemic can be gleaned from the award in Macromex Srl. v. Globex International Inc., which addressed the implications of the 2006 avian flu outbreak. The award, rendered by a tribunal under the arbitration rules of the AAA-ICDR, was later affirmed by a U.S. federal district court and then a U.S. court of appeals.

Globex was an American company selling food products internationally. It contracted to sell Macromex, a Romanian company, 112 containers of chicken parts to be delivered to Romania. In June 2006, an avian flu outbreak caused Romania to disallow temporarily the importation of chicken. By the time the restriction was in place, Globex had partly performed, having delivered some of the chicken as agreed. But it failed to deliver the remainder, allegedly due to the restriction. Macromex commenced proceedings seeking $608,323 as damages for breach of contract. Globex argued that the avian flu, and the Romanian regulatory response, was a “force majeure” event under CISG Art. 79 (the parties’ contract itself did not contain a “force majeure” provision).

The tribunal carefully analyzed the CISG’s force majeure provision. Article 79 provides that “[a] party is not liable for a failure to perform any of his obligations” if the failure to perform (i) was caused by an “impediment,” (ii) that was beyond the party’s control, and (iii) unforeseeable or unavoidable by the party at the time of the contract.

The Macromex tribunal found that the Romanian response to avian flu, stopping all chicken imports with virtually no notice to the industry, easily met the first requirement. It was an impediment “beyond Seller’s control,” and “it would not have been reasonably contemplated as a risk” at the time the contract was entered. The more difficult question, in the tribunal’s view, was whether the avian flu outbreak and resulting regulation was something seller could have reasonably been expected to avoid or overcome.

The tribunal acknowledged it was a question with little precedent. But it found that Globex could have overcome the consequences of the outbreak and resulting regulation. In particular, it could have agreed to a workaround the buyer had proposed: ship to a location other than Romania. The tribunal found this commercially practicable. Indeed, another supplier in the same circumstances had successfully delivered at a substitute location proposed by the same buyer. Accordingly, the tribunal found that avian flu and Romania’s ban were not, in the end, enough to excuse liability on the contract.

The Macromex case shows the difficulty in predicting whether a major health crisis will be deemed a “force majeure” event that excuses performance under CISG Art. 79. Even where the crisis and its fallout are extreme and unprecedented, whether force majeure applies will still depend on intensive, case-specific and fact-bound inquiries by tribunals.

That said, the COVID-19 pandemic—and associated international responses—already appears to eclipse avian flu disruptions by some magnitude. This coronavirus outbreak is affecting many if not all nations simultaneously. Finding commercially viable workarounds, such as the alternative place of delivery proposed in Macromex, might in some circumstances be impossible.

It is also important to keep in mind Article 79’s other requirements. There must be a clear causal relationship between the force majeure event and the non-performance. With current price volatility making various pre-pandemic contracts more onerous to one party or another, some parties will be tempted to rely on the virus pretextually to avoid unfavorable bargains. In each case, judges or arbitrators will assess carefully the actual cause of non-performance.

And even if a force majeure legitimately prevents a party from performing, that party must nevertheless remember to give proper notice within a reasonable time, or risk a tribunal finding against it.