Flood damages do not always suspend the contract

Marcello Mantelli
Lawyer in Milan and Turin


International trade

It is necessary to examine the specific contract clauses set with the client.

It is often the case that the risk of force majeure is all borne by the seller.

The enterprises based in the flood-affected areas will need to reorganize in a timely manner not only to resume business after the natural disaster, but also to avoid potential claims for damages from partners based abroad for non-delivery of goods. Indeed, due to the flooding and the damages to the production facilities, the execution of thousands of international sale contracts is at risk.                                                                                

It will be necessary to evaluate the actions to undertake to secure ongoing contracts in order to keep their value intact where possible or at least limit their value destruction and potential litigation.

The pandemic experience has shown that as a rule, business partners negotiate to alleviate the effects/ consequences of extraordinary events. But this is not always the case. The rules to deal with the issue consist of, depending on the case, a specific clause in an international sales contract, the United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention), a national law or general principles of law (Lex Mercatoria).

Where, as is usually the case, there is a specific clause in the contract to which reference should be made in order to settle the case -hoping that it is well balanced- even if it does not follow the provisions of the law applicable to the contract and provided that this law does not require for mandatory rules. The clause will probably provide for a suspension of the contract for a definite time, its possible renegotiation or termination. From the interpretation of the clause the bitter surprise might emerge that the allocation of the force majeure risk lies entirely on the seller. In this case, the seller will unfortunately be liable for damages caused by his default/ noncompliance.

Instead, as is often the case, if the contractual clause is deficient or incomplete, it will be necessary to refer to the provisions of the applicable law, which in many cases will be the Vienna Convention, regulating in Article 79 (exemptions) cases of force majeure.

According to the Vienna Convention, the affected party, in order to be exempt from liability for non-delivery, must prove that the impediment was beyond its control, that it was unforeseeable when the contract was signed, and that it could not be reasonably overcome or avoided. The affected party must be able to prove that the non-delivery of the goods was, in its particular case, caused by the flood. Then it must demonstrate that it has taken all possible measures to perform the contract; for example, by procuring other goods of the same kind on the market (e.g., a ton of peaches) to replace the destroyed ones, provided that they are available, and the price is not disproportionate (Dusseldorf Regional High Court, July 2019, Case No. 6U2/19).

Finally, crucial is the prompt notification to the contracting partner of the impediment and its effects on the ability to fulfill the ongoing contract.

According to the Vienna Convention, it must be proven that the impediment was out of control, unforeseeable and unavoidable,

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Marcello

Dear Aurelia, the information you have provided are not sufficient for an answer which is subject to a professional engagement. In any case, we should study the provisions of the contract and identify governing law of the contract.If it does not provide anything on governing law then conflict law shall apply (in the most part of the countries likely the governing law will be the law of the country where the agent is domiciled). best regards Marcello Mantelli

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Aurelia

I signed a contract with a fashion agency but there were no termination clauses in the contract and decided to withdraw it before one week after signature so sent them an email but after 14 days they sent me an email and asserted that because i didnt withdraw in legal deadlines i have to perform the contract and pay whole money.Noboday told me about any deadlines and nothing was in the contract!! Why did they claim such a thing?

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