Impossibility Clause: Analysis of a New Proactive Risk Concept Dealing with Unforeseen Circumstances

Mie Rosendahl Jørgensen & Michelle Sigersted Andersen

Student thesis: Master thesis

Abstract

With this master thesis, it is aimed to challenge whether the Danish regulation needs a new modified risk concept and hereby introduce a different risk allocation than what other risk concepts currently manage. The proposition to introduction of a different risk allocation is to minimize the effects of a force majeure situation. In addition, it will present better opportunities for the parties to overcome the situation and maintain their relationship. The scope of the legal analysis has primarily been to analyse the Danish Sales of Goods Act and identify how this regulation presently handles a force majeure situation. According to the Danish Sales of Goods Article 24 the non-performed party is excused of its liability if that party can prove, that is was due to an impediment beyond its control. Accordingly, if the party hereby is excused, it will lead to a breach of contract, where both parties will be discharged by performance of duties. A breach of contract will moreover lead to the loss of the parties’ relation. The parties can enter either a conventional or a strategic contract. By introducing a constructed model, it is in an economic analysis illustrated, what kind of damage a force majeure situation can have on both contracts. With the model, it was possible to identify that the strategic contract induces the most damages while it also presents a more attractive outcome for the parties if it is maintained. This follows by the possibility to generate the relations- and quasi-rent. On that, the main purpose of this master thesis is to demonstrate that if the parties use the proposed new risk concept “Impossibility Clause” in their contracts, it can be a contract tool to increase the possibility to keep the contract and to reduce the risk of a breach of contract. Moreover resulting in the desired legal status and a higher joint outcome, which, according to the Kaldor Hicks criteria, will be more efficient for the involved parties and the society. This follows as a result of the equal risk allocation and the following cost sharing duty between the parties that the Impossibility Clause states. Furthermore, identifying more risks ex-ante reduces the uncertainty in the contract and gives the parties a better opportunity to set realistic contract prices and overall get a more complete contract, which is also in the interest of the society.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2018
Number of pages126
SupervisorsKim Østergaard