Escaping Contracts Can Be Expensive

January 10, 2011, 10:18 AM

Globex International, Inc. learned a $800,000 lesson when it challenged an arbitrator's decision to hold it liable for failing to meet contract performance requirements established under CISG (United Nations Convention on Contracts for the International Sale of Goods). Globex, an American food vendor, agreed to sell 112 containers of chicken parts to a Romanian company called Macromex. Before delivery of the full shipment, the Romanian government banned the importation of chicken. From Globex's perspective, this ban was fortuitous, because the price of chicken had spiked upward. Consequently, when Macromex demanded that Globex deliver the chicken parts to a Black Sea port in Georgia as an alternative delivery point (for substitute performance), Globex declined the direction in favor of selling the chicken to a higher bidder.

When Macromex filed its arbitration demand, Globex argued that it was shielded from liability under Article 79 of CISG, which exonerates parties from damages when their performance is impeded by events of force majeure. The Romanian government's ban was such an event, argued Globex. However, under Article 79, the impediment must be such that it could not be avoided or overcome. Macromex showed that other suppliers had complied with its request to deliver product to Georgia in lieu of Romania. The arbitrator was therefore persuaded that the impediment could be overcome and awarded Macromex $800,000 in damages against Globex. Both the federal district court and the federal appeals court affirmed the arbitrator's award. The bottom line: escaping from a contractual obligation under CISG is not so easy, so be careful entering into one.--Charles V. McPhillips