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Force majeure, frustration and equivalent concepts in Britain, France, Italy and New York

Posted by Noor Kadhim

16-04-2020

A comparative study for the art market by Noor Kadhim, Leonardo Carpentieri and Megan Noh.

The coronavirus outbreak (“COVID-19 pandemic”) was qualified as a pandemic by the World Health Organisation on 11 March 2020. However, what does this mean for the performance of contracts, globally? There is much concern about whether transactions may satisfactorily be performed or whether a party can get out of meeting its obligations either through a specific clause in their contract that excuses their performance (a “force majeure” or hardship clause), or through the operation of general principles of law (for instance, frustration). In particular, arts transactions are affected because the art market (which involves the transport of art across borders, and physical inspection) is particularly vulnerable to the new government social distancing restrictions. We have taken a look at the English law position on contractual force majeure and the doctrine of frustration, and briefly compared it to the positions in the other major European art hubs of Milan, Paris and New York.

On 24 April 2020, Noor Kadhim, Leonardo Carpentieri and Megan Noh hosted a live webinar which you can watch below.

Force majeure under English law

The concept of force majeure (“FM”) is not, unlike in continental jurisdictions, itself recognised as a term of art in England and Wales. Its origins are of course in French law, which allows the obligor to be discharged from performance of the obligations where an event has occurred which is beyond the control of the obligor and could not have been reasonably foreseen at the time of concluding the contract, and the effects of which could not be avoided by appropriate acts. In contrast, English law does not recognise the term force majeure; it has no inherent meaning unless the term is defined. For instance, words such as “usual force majeure clauses shall apply” will be regarded under English law as void due to their uncertainty. Similarly, any FM clause preceded by the obligation “to make every effort to carry out the contract” is likely to be void unless the parties have in fact taken reasonable efforts to carry out the contract.

It is worthwhile to remember that FM clauses do not operate as ‘exemption’ clauses, although it is in practice often difficult to draw a clear distinction between the two types of clause because the effect is the same: one or both of the parties is/are prevented from fulfilling their side of the contract.

The key is to look closely at the wording of the clause, in the absence of definition or codification of the term or the elements required to constitute “force majeure” under English law. Frequently, a number of ‘FM equivalent’ events are specified which qualify as FM events, followed by a catch-all provision “or any other causes beyond our control”. These events can be outside the scope of the previous list and be events that arise independently. An example of listed specific events is the following: “Act of God, storm tempest or flood, fire, war, civil unrest, riot, government regulations, strikes, prohibition of exports”. If ‘pandemic’ or ‘epidemic’ is specifically included, the trigger event would be the occurrence of the pandemic or epidemic in question (eg the COVID-19 pandemic, assuming it is defined by the appropriate authority (eg the World Health Organisation)). If not, one could rely on the inclusion of ‘government regulation’, arguing that the implementation of certain restrictive measures by relevant governments triggers the FM clause preventing performance. In that case, there would be a delay in relation to access to the FM clause, and the government action in question would need to be scrutinised to evaluate whether or not it in fact impeded the obligation in question. It is much better (for the person relying on the FM clause) for the clause specifically to list ‘pandemic’ because then the question is beyond doubt.

To take an example: let us say a contract (governed by English law) has been concluded for the sale and purchase of a Titian painting but this is made subject to authentication of the work by a Titian expert who must view it in person, funded by the buyer. The expert lives in Germany, and the painting is located in France. Technically, the contract can continue even under lockdown conditions because the expert is still able to travel physically to France to inspect the painting, even if travel is not advisable except in situations of necessity. The buyer would not be able to rely on, say, any existing more onerous conditions and possibly elevated costs associated with completing the authentication process. Simply put, the government regulations (e.g. preventing travel in some cases and making it difficult in others) might not affect this particular obligation and therefore the trigger for the FM clause does not arise. The clause – and party obligations are interpreted strictly – under English law. However, if the FM clause specifically mentions ‘pandemic’ as being an exonerating / trigger event, though likely to be rare, this is likely to assist reliance on the clause as of the date the pandemic is described as such by the authorities and the World Health Organisation, for example. However, the remainder of the clause (where it imposes further requirements) needs also to be fulfilled. The event must not simply arise, it must normally render performance impossible. Where the clause is not specific, but general, again it will be interpreted according to its plain meaning.

Crucially, a FM clause does not render a contract void ab initio (i.e. void from the start). This means that after the FM event is over, the contract resumes. If a party wrongly relies on a FM clause to stop performance (e.g. payment obligations or otherwise), and it is later found (eg by a Court) that this was incorrect, the party relying on the FM clause might be found liable to pay punitive damages.

Therefore it is easier to see why the COVID situation can operate to render some contracts impossible (for instance, restaurants, not being essential, are forced to close and therefore cannot be expected to complete contracts with food suppliers). In China, in 2003, the SARS epidemic was classed as an FM event and contractors were able to rely on this when arguing that their factories were closed and unable to produce goods thanks to the shutdown.

The situation is not as simple with, for example, art galleries; it can be argued that COVID was foreseeable before March and that their contracts (such as with artists, to represent them and sell their works) could still potentially be fulfilled if an online programme is put in place and the works can still be delivered to the gallery for photography and display (even if online).

All this being said, even in these extraordinary and unprecedented circumstances, it is not clear whether an English court would absolve a party from performance of a contract in reliance on a FM clause and using the COVID pandemic (and government restrictions) as a ground. Even if the FM clause itself does not, English law usually requires mitigation of the effects of the occurring event; the invoking party must show that it took reasonable steps to avoid the event.

The English courts will also look at the plain meaning of words in contracts. To establish relief provided by the FM clause, based on the actual wording of the clause, the English court will interpret and examine a number of elements including the parties’ intention (at the time of making the contract), the event and its impact, causation and evidence of proof. Unlike under French law, unforeseeability of the event is not required.

Another technical but important point is that under English law, to be able to rely on FM you must have given effective notice of your intention to rely on it. The timing of such notification is important.

One should bear in mind certain statutes that operate to limit FM clauses. Section 3(2) of the Unfair Contract Terms Act 1977 (where it applies, i.e. when contracting with a party on their standard terms of business not on arms length) can invalidate a FM clause if it is found to be unreasonable. Also, consumer contracts are subject to the requirements of fairness and transparency (Consumer Act 2015, supplemented by the Unfair Terms in Consumer Contracts Regulations 1994).

Where there is no FM clause, the doctrine of frustration may be relied on, but once again, the hurdle is high in order to be able to rely on frustration. The hurdle is high, because it is one of the most powerful doctrines in English law. The doctrine serves to relieve a party who is prima facie in breach of contract of any liability in damages – which conflicts with the Court’s strict approach to breach of contract. As established by the leading case of Taylor v Caldwell (1863) 3 B. &S. 826,supervening events that render a contract physically or commercially impossible to perform (in that case, the music hall which was the subject matter of the contract was destroyed by fire; the cause of which was not attributable to either party) can discharge a contract. The event must be unforeseen. Equally, if the contract is transformed into something ‘radically different’ from that foreseen at the start, frustration may be utilised in the absence of a contractual provision, and can (unlike FM) kill the contract. It is not merely a suspension of obligations, but a termination of the agreement. Also, the event must be outside the control (fault or blame) of either party.

Finally, the use of Material Adverse Change (“MAC”) clauses in English law, being used in the context of the acquisition of a target company or business, will not be discussed here but is worth mentioning. A MAC clause aims to give the buyer the right to walk away from the acquisition before closing, if events occur that are detrimental to the target company.

In conclusion, under English law, FM is a creature of contract and the sanctity of contract will itself not easily be permitted to be derogated from by the English courts except where it is clearly provided for and where the events are such that obligations under the contract truly cannot happen. The uncertainty of approach amongst scientists and governments with respect to the Coronavirus is not likely to aid matters- when what is required is a unanimous definition with regard to which obligations are, and are not, physically and commercially impeded and for how long.

Force majeure under Italian law

In Italy, the Council of Ministers issued several regulatory measures in response to the emergency situation, including certain decree laws/ decrees aimed at providing relief from meeting impending loan or utility bill payments, and preventing companies from profiteering by elevating the prices of healthcare and medication during the pandemic.

In the light of some of the restrictive measures implemented by administrative or legislative authorities, an objective impossibility of performance may occur in the form of the so-called “factum principis”. Parties directly affected by the measures may be released from the consequences of a breach of contract.

However, the causative link between the COVID-19 pandemic and the finding of force majeure is not automatic but will depend on the specific circumstances, such as the wording of the clause. In Italian law, as in English law, there are no definitions of “force majeure”. It usually refers to an event not due to the fault of any of the parties, outside of their control and (as under French, but not English, law) unforeseeable at the time of contracting, and which cannot be avoided.

The main references to force majeure may be found in the Italian Civil Code, in articles 1256, concerning contractual performances becoming impossible, and 1467, regarding the termination for excessive burden (similar to the notion of hardship clause under English law). The difference between the two is that under FM, contractual performance becomes impossible, whereas under a hardship situation it is merely excessively burdensome.

The supervening impossibility

Article 1256 of the Italian Civil Code allows exemption from performance for a defined supervening impossibility only if the impossibility is objective, and if it is not due to the fault of the parties. The FM exemption lasts as long as the FM event continues, and performance must resume after. As under English law, FM does not terminate the contract; termination only happens if the party suffering the impediment no longer has an interest in the contract (for example, if an annual summer art fair is cancelled thanks to the COVID restrictions, and when the restrictions are lifted, there is no longer any interest in holding the fair. In this case, the definition of what are essential terms in an art contract (such as timing) are important.

The excessive burden

As a result of the occurrence of a force majeure cause, the contractual performance may become excessive burden and lead to the termination of the relationship or the revaluation of the performance, with a consequent reduction to fairness also in light of the principle of good faith. The excessive burden does not prevent the performance but makes it more onerous as a result of extraordinary and unforeseeable events which do not fall within the contractual risk and allow the party to request a reduction in performance or the termination of the agreement. This is unlike the position under English law, where a FM clause will be construed strictly and it will not matter whether or not an obligation becomes more costly, if it can still in practice be performed.

Covid-19 and force majeure

In order to invoke the FM clause in an epidemiological emergency such as the present, in addition to meeting the principles above, there will not be an exemption from liability if the breach would have occurred for different and unrelated causes. For example, if a buyer is insolvent and cannot find funds to complete a transaction, he or she cannot rely on a FM clause invoking the pandemic situation.

Subsequently, it will also be necessary, as under English law, to ascertain whether any mitigating measures were taken to try and avoid claiming under FM and finding an alternative means to carry out the contract. As under English law, erroneously relying on a FM clause may entitle the other contracting party to claim damages for breach, inter alia, pursuant to article 1218 of the Italian Civil Code.

Finally, it should be considered that the harmful consequences suffered in the context of the business activity arising from the current health emergency could be, albeit partially, limited by insurance policies that provide cover for issues related to the interruption of the business activity.

The clause may also contain specific obligations, modalities and terms of communication and notification of the occurrence of the FM which should be observed. Careful legal guidance should eb taken prior to invoking such clauses.

Force majeure under French law

On 28 February 2020, even before the WHO’s classification of the COVID-19 virus spread as a pandemic, the French Minister for Economic Affairs and Finance announced it “as a force majeure case for companies”. As a result, “for all public contracts, if there is a delay in delivery by SMEs and companies we [public entities] will not apply penalties“. The aim of this statement was to limit the economic impact of the health crisis.

Despite the French Government’s firm intention to qualify COVID-19 as force majeure, this declaration does not have any legal effect with regard to private law contracts (so, the majority of art transactions) and is not binding on French courts.

In contrast with English and Italian law, under French law (where the concept emanated) there is a general principle of force majeure, whose regime was initially defined by case law and later codified by the reform introduced by the Order of 10 February 2016.

In this respect, Article 1218.1 of the French Civil Code provides as follows:

“There is force majeure in contractual matters when an event beyond the control [of the entity or person relying on it], which could not reasonably have been foreseen at the time of conclusion of the contract and the effects of which cannot be avoided by appropriate measures, prevents performance of the obligation by the invoker”.

As such, in order to be qualified as force majeure, an event must be:

(i)         unforeseeable at the time of the conclusion of the contract;

(ii)        unavoidable with respect to its occurrence; and

(iii)       beyond the control of the person invoking it.

Moreover, French courts assess the fulfilment of each requirement on a case by case basis. It must be noted that the threshold to establish FM under French law is very high as a party needs to demonstrate that it has become impossible to carry out performance because of the FM event.

Furthermore, the effects of a successful FM defence will depend on the period during which the event has lasted.

In this respect, Article 1218.2 of the French Civil Code provides:

If the impediment is temporary, performance of the obligation shall be suspended unless the resulting delay justifies termination of the contract. If the impediment is permanent, the contract is terminated by operation of law and the parties are discharged from their obligations […]”.

This takes it further than under English and Italian law, whereby termination of a contract is not automatic, regardless of the duration of the FM impediment. It is also difficult to foresee whether an impediment is indeed permanent; most are not. The first part of this clause does, however, address temporary impediments where time is of the essence (i.e. where it is a material condition of the contract that a contract be performed at a specific time, such as a summer art fair, or exhibition). So, when the event causing FM is temporary, performance of the contractual obligation is suspended until the end of such event, or terminated if the delay justifies such result; on the other hand, when the event in question it is permanent, the contract is terminated by operation of the law.

Should a party fail to meet the high threshold required for a FM claim, French law offers another legal remedy called imprévision (similar to hardship clauses under English law). Article 1195 of the French Civil Code sets forth the conditions which an applicant must meet to establish imprévision, which are:

(i)         a change in circumstances unforeseeable at the time of the execution of the contract;

(ii)        which renders the performance of the contract excessively onerous for a party; and

(iii)       this latter party has not accepted to assume the risk of such excessively onerous performance.

A successful claim of imprévision may allow parties to either renegotiate or terminate the contract, or mutually apply to the court for the readjustment of the contract. The difference is that under English law, a hardship clause must be written into the contract whereas under French law the remedy is codified.

The COVID-19 pandemic is not the first situation raising the question of force majeure in France. Even if the magnitude of COVID-19 had not been reached before, French Courts have already dealt with several epidemics (note: not pandemics, which are of a global magnitude) including Chikungunya (a mosquito-borne viral disease), Influenza H5N1 (bird flu), Ebola virus (transmitted to people from wild animals) and bovine brucellosis (infection of cattle).

In the examples mentioned above, French judges refused to class the epidemic in question as a force majeure event, concluding that applicants had not established the necessary causal link between the event and the non-performance of the contract.

In other cases, French courts have upheld the force majeure qualification.  This was for example the case when the events (including contagion and gastroenteritis, affecting hotel and travel agencies) had been unforeseeable and undetectable (in 1993 the Agen Court of Appeal considered that the “bovine brucellosis” (mad cow) met all the conditions to qualify as a FM event, and in 2006, the Aix-en-Provence Court of Appeal held a hotel owner and a travel agency not liable for, notably, the damages suffered by two clients suffering from gastroenteritis).

In the first ever French case discussing COVID-19, the Colmar Court of Appeal on 12 March 2020 classified the current health crisis as a force majeure event exempting the appearance of an asylum seeker in court because he had been in contact with a sufferer of COVID-19.  As this was an administrative law matter, the decision is however of limited application to commercial contracts.

In any event, the classification of the COVID-19 pandemic as a force majeure event is far from automatic and will be assessed by the judge according to the circumstances of the case. Nevertheless, the unprecedented scale of the COVID-19 virus, qualified as a pandemic by the WHO, as well as the government restriction measures defined by the French Decree of 14 March 2020 (confinement of the population, bans on gatherings, travel bans issued by companies), could represent strong elements to argue that this pandemic does constitute an event of force majeure.

Furthermore, the mandatory measures imposed by public authorities under penalty, for instance the closure of art galleries, museums and exhibition spaces (amongst other venues that focus on retail) from 14 March 2020 and the containment measures adopted on 17 March 2020, could be qualified as a “fait du prince” under French law – being defined as a mandatory act of government causing damage to a third party – and constitute a specific application of force majeure allowing the debtor to be released from its duties, at least temporarily.

In the art industry, which is particularly reliant on transportation and therefore largely impacted by the restrictions imposed globally, it will be essential to determine, as far as new and recent contracts are concerned, exactly when the parties took or may have taken the COVID-19 pandemic into account. Should this be when the epidemic was declared in Wuhan, in Europe, in France and/or when it was formally qualified as a pandemic by the WHO on 11 March 2020?  A thorough chronological and legal assessment of the impact of the crisis on the parties’ contractual obligations is a key factor to assessing the remedies available.

Force majeure under New York law

New York has long been recognized as a “hub” for art transactions, and has a high concentration of auction house salerooms, private galleries, and fine art storage/shipping facilities. Traditionally, prospective purchasers have often inspected artworks in person, including for qualities that may not translate well through photographic reproduction (such as impasto, sheen, or ultraviolet fluorescence); high-value artwork is also subject to careful logistical arrangements (typically culminating in collection by or delivery to the purchaser as part of a “closing”).

As the COVID-19 crisis continues to unfold, the unavailability of physical access to works of fine art has stymied these long-established practices, in turn creating obstacles to the performance of contractual obligations. In particular, the executive order issued by the Governor of New York on March 20, 2020 required non-essential businesses—including auction houses and galleries—to “close in-office personnel functions” as of March 22, after which date those businesses were no longer able to make artwork available to clients on their premises. This executive order categorizes mailing/shipping services as “essential” services, not subject to its in-person restrictions. However, most prominent storage/shipping vendors have (understandably) prioritized the health and safety of their staff and temporarily shuttered their New York operations, leaving some in-progress art transactions in limbo, with the contracted-for works unable to be inspected or transferred between locations.

It is no surprise that as a result of these abrupt closures, parties transacting art have increasingly turned to the existing FM provisions in their contracts—or sought to introduce new such provisions into in-progress deals—to provide relief from the impact of, or build in flexibility around, the dynamic circumstances posed by the ongoing pandemic. A FM provision relieves a contractual party of the duty to perform upon the occurrence of an unforeseeable event outside of the party’s control. The question of whether a party’s non-performance may be excused by a FM event depends in large part on the specific language of the contractual provision at issue.

New York courts narrowly construe the scope of FM provisions, looking only to explicitly enumerated triggers (or, in cases where the relevant provision includes a “catch-all” clause such as “or other circumstances beyond the control of the parties,” applying the principle of ejusdem generis to recognize as triggers only events sufficiently similar to the enumerated items). Language referencing “epidemics, pandemics, viral outbreaks, or other public health emergencies” would generally be considered to have been triggered by COVID-19 from an earlier point in time than a clause referencing only “pandemics” (which arguably would not have been triggered until the March 11, 2020 categorization of COVID-19 as such by the World Health Organization).

In evaluating applicability of a FM clause, New York courts also consider (1) whether the alleged trigger event was foreseeable; (2) whether it was the actual cause of the party’s non-performance; and (3) whether it truly rendered impossible the performance at issue.

With respect to foreseeability, New York courts have taken a mixed position where parties expressly enumerate a potential FM event, in some cases disregarding the unforeseeability requirement if not also expressly included in the relevant provision (see generally Starke v. UPS, Inc., 513 Fed. Appx. 87 (2d Cir. 2013)), and in other cases seemingly conflating it with the requirement that the occurrence of an enumerated FM event not have been within the non-performing party’s control (see Goldstein v. Orensanz Events LLC, et al., 146 A.D.3d 492 (N.Y. 1st App. Dept. 2017)). New York art industry businesses that introduced more robust force majeure provisions (inclusive of specific references to “pandemics” and similar triggers) in response to the spread of the virus in other parts of the world—but prior to the spread of the virus or introduction of related restrictions in New York—may face challenges from counter-parties arguing that at the time of the formation of such contracts, COVID-19 was not only foreseeable, but had in fact been foreseen.

Where a contract lacks specifically-enumerated language on point and a non-performing party seeks to rely on “catch-all” language to encompass the impact of COVID-19, it may also face a challenge, as disease/viral outbreaks are not unlike adverse weather conditions, in that they are inevitable, albeit impossible to predict the timing of with certainty. Accordingly, the failure of a FM provision to reference such events may lead to the provision being interpreted to have intentionally omitted a “known unknown,” i.e., a foreseeable trigger. See generally Team Marketing USA Corp. v. Power Pact, LLC, 41 A.D.3d 939 (N.Y. 3rd App. Dept. 2007) (citing Kel Kim Corp. v. Central Mkts., 70 N.Y.2d 900 (N.Y. 1987)).

While a global pandemic may ultimately have been inevitable, the scale of COVID-19’s impact is unprecedented, and it remains to be seen how New York courts will address the foreseeability analysis in its wake.

With respect to causation, a party seeking to excuse non-performance on the basis of COVID-19 would not likely have been able to, for example, cancel a February 2020 public auction in New York even under contractual language broadly contemplating “viral outbreak” as a FM event. Despite the fact that the outbreak of COVID-19 was advanced in other parts of the world by February (including in Wuhan, which was placed under quarantine on January 23), the art market in New York was still operating on a “business as usual” basis in New York throughout that month (indeed, this was the case largely through early March, culminating in the prestigious The Armory Show held from March 4-8 and attended widely by international galleries and collectors).

With respect to impossibility, neither mere economic disadvantage nor impracticability will satisfy this standard, and a non-performing party may be required to demonstrate reasonable, good-faith efforts to perform despite the obstacle presented by the FM event. The determination of impossibility will thus vary widely in the context of artwork transactions:

Unlike transactions involving fungible, commercially-manufactured goods— performance for which, a seller might be able to mitigate by sourcing the items from a different supplier—most high-value art market transactions involve goods that are by their very nature, unique. Accordingly, the economic impact of an attempt to mitigate performance in an art transactional context can also vary widely, and a sophisticated FM provision will contemplate elections on the part of the party who is not seeking to excuse non-performance. For example, in the auction consignment example above, the consignor might not wish to include the work in a subsequently-scheduled sale, given the potential for changed market conditions. In the private sale broker example, the owner-principal might not wish to proceed with an “in situ” sale, given the prospect that a sale under such circumstances might result in a less-than-optimal sales price, and/or the likelihood that the purchase agreement resulting from a transaction conducted under such circumstances would be contingent on a subsequent physical inspection.

Common Law Doctrines of Impossibility and Frustration of Purpose

Where a contract lacks a FM clause, its parties may seek to rely on common law doctrines for alternative relief from performance obligations.

The common law doctrine of impossibility excuses performance by a party upon the occurrence of an extraordinary intervening event, i.e., one which the parties assumed would not occur and which has made performance “objectively” impossible, either because the means of performance were destroyed, because of the passage of a law rendering performance illegal, or because of a dramatic change in circumstances that would result in performance being against public policy. As with New York law on FM provisions, the event must actually cause the non-performance; moreover, the event must not have been foreseeable at the time of the formation of the contract. There is some New York precedent involving city-wide “lockdown”; in a case involving contractual non-performance post 9/11, a New York court found that government restrictions imposed as a result of the terrorist attack might have resulted in impossibility (see Bush v. ProTravel Int’l, Inc., 746 N.Y.S.2d 790 (Civ. Ct. 2002)).

The common law doctrine of frustration of purpose excuses performance by a party when an extraordinarily intervening event, the absence of which was a basic assumption of the contract, “makes one party’s performance virtually worthless to the other, frustrating his purpose in making the contract” (PF Safeguard, LLC v. BCR Safeguard Holding, LLC, 85 A.D.3d 506 (N.Y. 2011)). The frustration must be so “substantial” that it goes to the core of the contract, i.e., negates the reason the other party entered into the agreement. As with the doctrine of impossibility, the frustrating event must have been unforeseeable (Gander Mountain Co. v. Islip U-Slip LLC, 923 F. Supp. 2d 351 (N.D.N.Y. 2013); however, the doctrine of frustration of purpose can apply where performance would actually be possible, if such performance would simply make no sense in the context of the parties’ original intentions.

New York courts apply both common law doctrines narrowly, and on a highly fact-specific basis. Disputes about seemingly similar contractual duties under similar agreements may produce dissimilar results.

Application of the Uniform Commercial Code to Contracts for the Sale of Goods

In New York, contracts for the sale of goods (including fine art) excuse “[d]elay in delivery or non-delivery in whole or in part by a seller” when such performance “has been made impracticable by the occurrence of a contingency, the non-occurrence of which was a basic assumption on which the contract was made,” or “by compliance in good faith with any applicable foreign or domestic governmental regulation or order” (N.Y. U.C.C. § 2-615). Such a seller must give notice to the buyer, and must ultimately show that (1) a contingent event has occurred, (2) the impracticability of performance has resulted from such occurrence, and (3) that the nonoccurrence of the contingent event was a basic assumption of the contract (see Dell’s Maraschino Cherries Co., Inc. v. Shoreline Fruit Growers, Inc., 887 F. Supp. 2d 459 (E.D.N.Y. 2012).)

Critically, the standard of commercial impracticability is lower than that imposed by the common law doctrine of actual impossibility, and prohibitive expense or other substantial adverse economic impact may be sufficient. However, a claim of impracticability does not provide complete relief to a New York seller still has an obligation to mitigate the effects of the contingent event. Imagine, for example, a contract governing the sale of multiple artworks, the “closing” for which contemplates delivery of all such works. If most of the works have already been delivered, but one is delayed in transit or unable to be shipped due to COVID-related logistical disruptions, the seller may not unilaterally cancel the sale as to the already-delivered works; under Section 2-616, the buyer has 30 days to elect a resolution, such as agreeing to delayed delivery, cancelling the purchase of the delayed work, or, if the delayed/outstanding work “impairs the value of the whole contract” (in the case of an installment contract), terminating entirely. New York’s Uniform Commercial Code accordingly may better position a buyer than a force majeure clause.

Note that a gallery or auction consignment contract—whereby a broker or intermediary provides services to the owner of an artwork by seeking to find a buyer or offering for sale on the owner’s behalf—would ordinarily not be subject to these Uniform Commercial Code provisions, and in the absence of a FM clause, would still be subject to the common law doctrines of impossibility or frustration of purpose.

Please email the authors if you have any questions: Noor Kadhim, a Partner and Chair of the Art Law department at Gardner Leader LLP (for the English law position), at [email protected], and Leonardo Carpentieri, Counsel at LMS Legal LLP (for the French and Italian law positions) at [email protected] and Megan E. Noh, a Partner and Co-chair of the Art Law Group at Pryor Cashman LLP (for the New York law position), at [email protected].


Noor Kadhim

Partner
Dispute Resolution

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