the problem of autonomy in soviet international contract law

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The Problem of Autonomy in Soviet International Contract LawAuthor(s): George M. ArmstrongSource: The American Journal of Comparative Law, Vol. 31, No. 1 (Winter, 1983), pp. 63-98Published by: American Society of Comparative LawStable URL: http://www.jstor.org/stable/839607.

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GEORGE M. ARMSTRONGThe Problem of Autonomy in SovietInternational Contract Law

The problem of autonomy in the title of this essay refers tothe relationship of the international trading firm to property. I shallexamine two aspects of that relationship under Soviet contract law.First, I shall consider the firm's right to dispose of and acquire prop-erty under negotiated terms and the ancillary power of the firm tosecure enforcement of those terms in a Soviet court. Second, I shallconsider the Soviet judiciary's method of solving problems that thecontracting firms did not resolve in their negotiations. This problemalso pertains to the firm's relationship to property inasmuch as ajudge's decision to place the burden of overcoming obstacles thatarise in the course of performance on one party rather than theother diminishes the profit which that firm receives. In other words,if the firm had no reason to expect that the burden of carrying per-formance forward would be its responsibility, the judge's order ren-ders the firm less secure in its property.The purpose of this examination of the relationship of the inter-national trading firm to property is to provide a focus for an explora-tion of the impact of several Soviet policy objectives on law andjudicial practice. By examining decisions of the Soviet ForeignTrade Arbitration Commission (F.T.A.C.), academic commentary oninternational commerce and relevant legislation, I shall reveal theway in which the Soviet legal community has resolved conflictsamong these objectives, the division of labor among governmentalinstitutions for accomplishing governmental aims, and the relativepriority that the government has given these goals over the courseof its sixty-five year history.I shall argue that the Soviets have assigned a limited objectiveto their foreign trade contract law and to the F.T.A.C. which en-forces international contracts. That objective is to foster confidenceamong foreign firms that the U.S.S.R. is a reliable trading partner.In order to achieve this long term objective, the Soviets generallysacrifice short-term victories in litigation where such victories mightGEORGE M. ARMSTRONG is Assistant Professor at New York Law School. The authorgratefully acknowledges the comments of Professors John Honnold of the Universityof Pennsylvania Law School and Harold Berman of the Harvard Law School on anearly draft of this paper.

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give the impression that the F.T.A.C. used arbitrary grounds forreaching its decision. Inasmuch as the Commission does not imposeon either party burdens that are unpredictable in light of the con-tract or customary international practice, Soviet law affords the par-ties a large measure of autonomy. This approach to contractualinterpretation that emphasizes the long-run image of the F.T.A.C.does not, however, mean that the Soviet Union fails to provide forits interim objectives. A central part of my argument is that the leg-islature has assigned responsibility for achieving interim goals andobjectives that might be at odds with the creation of long-term traderelationships to the administrative agencies that negotiate contracts.FOREIGN TRADE OBJECTIVES

I shall examine Soviet international contract practice in light ofsix considerations that are a mixture of goals which the Soviet gov-ernment professes to have and objectives which it may have.Briefly, these objectives are 1) the need to acquire the technologyand goods of more advanced countries, 2) the need to protect the in-ternal Soviet economy from foreign economic power, 3) the need tocoordinate foreign trade with the National Economic Plan, 4) theneed for foreign currency, 5) the desire to assist political allies vis avis adversaries, and 6) the desire to present an international imagethat the Soviet Union is a reliable trading partner. Although I shallnot examine the history of these policies in detail, I shall discuss theways in which they might influence Soviet foreign trade practice.The Soviet Union has professed a need to acquire the technol-ogy and produce of more advanced countries since the early 1920s.In order to achieve this objective, the government has entered con-tracts with numerous foreign firms for the construction of factorieson Soviet soil and the importation of patents and know-how. TheSoviets have chosen to address the need to acquire technology as along term objective. When a contract for the importation of technol-ogy is litigated before the F.T.A.C., that court is mindful that thegovernment wishes to continue importing technology and that rela-tions with foreign firms may be chilled by a ruling that appears to bearbitrary or to differ greatly from customary international modes ofinterpretation. The jurisprudence of the Commission bears out thehypothesis that the government will sacrifice the technology itplanned to acquire through any particular contract in order to main-tain the impression of impartial judicial decision making. Insofar asthe importation of technology is a goal of the government, that goalis achieved at the stage of negotiation rather than through shortterm victories in litigation.The considerations involved in the Foreign Trade Arbitration

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ARMSTRONG: SOVIET CONTRACT LAWCommission's approach to the objectives of acquiring foreign cur-rency and coordinating international trade with the National Planare much the same as the considerations which guide that court incases involving foreign technology. The government enters manyexport contracts for the primary purpose of acquiring foreign ex-change, and all international contracts are included in the Plan. Be-cause the U.S.S.R. has always had a shortage of foreign currency,performance of these contracts is very important to the country.Similarly, the breakdown of performance in a contract included inthe Plan may cause a chain reaction throughout the economy asfirms that had expected to use the imported products or a refabri-cated version of them find that they are unable to meet their owncommitments. The government generally attempts to solve theseproblems in the initial negotiations of the contract rather than in lit-igation, adhering to the notion that judicial decisions that cannot bejustified under international standards of contractual interpretationare detrimental to the country in the long run.Although primary responsibility in this area belongs to adminis-trative bodies, the importance of the objective of coordinating inter-national trade with the National Plan has influenced the governmentto give the F.T.A.C. some responsibility in this area. While the coun-try's need to acquire the goods involved in particular contracts ap-pears not to influence the court's decision on the merits of the suit,inasmuch as the Soviet party loses about half of all cases, the objec-tive of fulfilling the Plan has shaped the law of contractual remedies.When a firm loses a suit before the F.T.A.C.,that court will generallynot allow it to expunge its obligation by paying the victor monetarydamages. Instead the court orders the loser to recommence per-formance of the contract.

The Soviet commentator Raikher observes that in the capitalistworld a contract is merely a means of acquiring profit. If the capital-ist can acquire more profit through non-performance of the contractor through paying monetary damages, the capitalist will prefer notto perform. For the Soviet firm, a participant in a planned economy,damages are not an adequate substitute for performance, and theSoviets have not conceded to their capitalist partners the right topay damages in lieu of performance.The government has also given the F.T.A.C.peripheral responsi-bility for another political objective-protecting the domestic econ-omy from external political adversaries. A wide variety of problemsare under the umbrella of economic self defense and the govern-ment has assigned the most important matters to the agencies thatnegotiate and approve contracts. As I shall show below, the Bol-sheviks created the state monopoly on foreign trade in 1918 in orderto defend the national economy. The government's interest in con-

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THE AMERICAN JOURNAL OF COMPARATIVELAWtrolling exports of scarce material, currency, foreign investment onSoviet soil, and state economic secrets continue to be the domain ofthe administrative bodies that are the successors of administrativebodies organized in the 1920s. If the appropriate agency approves acontract, the F.T.A.C. will enforce it without scrutinizing the impactof the agreement on the domestic economy.The Soviet government has, however, given the Commission re-sponsibility for determining that the proper public officials have ap-proved the contract. Because the government wishes to avoidagreements in which an unauthorized person fraudulently enters acontract in the name of a Soviet firm, it has adopted the require-ment that all international contracts be in writing and signed by twopeople who are authorized to obligate the firm. Although I have dis-covered no case in which the question arose, the F.T.A.C. is respon-sible for enforcing these formal requirements.Another objective of Soviet trade policy is the assistance ofpolitical allies vis a vis adversaries. Documentation of the scope orimportance of this objective is beyond the purposes of this essay.My intention here is only to note the division of labor with respectto this objective between Soviet contract law and administrativeagencies. The evidence that I shall present in a later section of thisessay indicates that the national identity of the litigants has not in-fluenced the Foreign Trade Arbitration Commission and that thecourt had adhered to its mission of maintaining an aura ofimpartiality.The F.T.A.C. has, however, enforced the government's prefer-ence for particular nations where those preferences are embodied inthe contract itself or in judicially cognizable governmental decrees.During the period of the Nazi-Soviet alliance, for example, theU.S.S.R. sold oil to a Belgian firm on the condition that the buyernot resell the oil to France. When the oil was seized in route byFrench authorities and the Soviet seller demanded damages, theF.T.A.C.implied that the restriction on resale was enforceable. Thecourt did not enforce the restriction, however, because the Frenchhad seized the oil and the Belgian firm could not prevent theseizure.

Similarly, in the aftermath of the Suez crisis, the Soviet Minis-try of Foreign Trade issued a decree prohibiting performance of acontract to sell oil to Israel. In this case the F.T.A.C. enforced thedecree. These cases indicate that the government has given respon-sibility for aligning Soviet trade policy with the twists and turns ofday-to-day foreign policy to the administrative bodies and minis-tries. In both cases mentioned above the court analyzed the facts ina fashion acceptable under international standards and preserved areputation of impartiality.

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ARMSTRONG: SOVIET CONTRACT LAWIn the preceding discussion I have suggested that the Soviet

government has divided responsibility for implementing foreigntrade policy between administrative agencies and ministries whichnegotiate and approve contracts and the F.T.A.C., which enforcesthem. The executive organs of government have the task of coordi-nating trade policy with the changing Soviet position on foreign af-fairs. The Commission's responsibility is demonstrating to tradingpartners that the U.S.S.R. abides by its bargains in spite of interna-tional exigencies and that a Soviet court can provide an impartial fo-rum for settling disputes.This division of responsibility has important consequences forthe foreign firm that trades with the U.S.S.R., i.e., for the firm's ca-pacity to control its acquisition and alienation of property. Becausethe F.T.A.C. fulfills its role in the sphere of foreign policy by inter-preting contracts under standards acceptable to the internationalbusiness community, the Commission enforces the allocation ofrights and duties to which the parties agreed in the contract withoutrendering the foreign firm an object or pawn of other Soviet objec-tives. The firm thus has greater capacity to control its property thanit would if the exigencies of foreign policy entered the adjudicationof every suit.A discussion of the doctrines that the Soviet legal communitydeveloped in order to convey the impression that the U.S.S.R. is adependable partner is the heart of this essay. The development ofthese doctrines began, however, only in 1932 when the governmentorganized the F.T.A.C. During the first fifteen years of Soviet powerthe Bolsheviks initially rejected the idea of commerce with capital-ists. They then experimented with a variety of institutions to obtaintrade and developed theories of the nature of the international legalsystem in order to justify commerce ideologically. The events be-tween 1917 and 1932 constitute a significant background for the insti-tutions and approaches to trade that emerged in the early 1930s andwhich today appear so stable. These events explain the division oflabor that resulted between administrative and adjudicative bodiesand the Soviet theory of the nature of the international system thatjustifies the institutional arrangement.

ORIGINS OF THE FOREIGN TRADE SYSTEMWhen the Bolsheviks came to power in 1917, they expected theirrevolution to spark a workers' upheaval throughout Europe. Be-cause they anticipated that capitalist states would soon become ex-tinct, they formulated no well developed ideas about the characteror basis of relationships that might exist between bourgeois andworkers' governments. The hostile reaction of foreign powers to the

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THE AMERICAN JOURNAL OF COMPARATIVE LAWrevolution and the assistance which several states gave to thecounter-revolutionary armies and the trade blockade convinced theBolsheviks, however, that the capitalist states were irrevocably hos-tile to the new Russian government. In March 1919 Lenin observed,We are living not merely in a state but in a system of states; and itis inconceivable that the Soviet republic should continue to exist fora long period side by side with imperialist states. 1 According toE.H. Carr, mutual aid among Soviet governments in Russia, Hun-gary, and Bavaria seemed at this time to exhaust the content of aproletarian foreign policy. Nothing more was either necessary orpracticable. 2

During this period of virtually complete isolation, the Russiangovernment created the state monopoly of foreign trade. The timingand terms of the monopoly suggest, however, that the Bolsheviksconceived of it as a device to control potentially hostile internal ele-ments rather than external relations. The terms of the monopolydid not give the government the initiative in organizing foreign tradeor prohibit private external trade. The decree allowed private firmsto continue foreign commerce on the condition that they secure gov-ernmental permission.3 Moreover, the government's issuance of thedecree at a time when trade was virtually non-existent indicatesthat the government was attempting to prevent contact between do-mestic and foreign anti-Soviet elements. The government did not in-troduce the state monopoly on trade because of the specialimportance of this sector for the organization of the planned econ-omy, as later Soviet commentators have claimed.4 Planning andcentral coordination of foreign trade did not begin until ten years af-ter the trade monopoly.In summary, shortly after the Revolution, the Bolsheviks con-ceived of the international order as an irreconcilable conflict con-taining no possibility of mutually advantageous relations betweencapitalist and workers' governments. The task of the governmentalapparatus of foreign trade at that time was not to facilitate and coor-dinate trade, but to stifle counter revolution. Between 1919and 1930,however, the government consolidated domestic power and gradu-ally transformed the administrative apparatus of foreign trade froma means of internal self defense into a means for acquiring neededgoods, for negotiating on favorable terms, and finally for coordinat-ing trade with the Plan. During the same period, prospects for inter-

1. Lenin, Sochineniia XXIV, 122.2. Carr, The Bolshevik Revolution I, 138 (1966).3. Sigrist, Vneshnaia Torgovaia Politika SSSR v Mezhdunarodnykh Dogovorakh64-65 (1927).4. Pozdniakov, Gosudarstvennaia Monopoliia Vneshnei Torgovli v SSSR 13(1969).

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ARMSTRONG: SOVIET CONTRACTLAWnational revolution faded, Stalin introduced the idea of Socialismin One Country and finally became fearful of the occurrence of an-other war. The Bolshevik theory of nature of the international orderchanged correspondingly from inevitable, irreconcilable conflict tothe possibility of expedient compromise, and ultimately to the avail-ability of mutually profitable relations with capitalist states.The inauguration of the New Economic Policy or N.E.P. in 1921brought about a debate within the Party on the question of the theo-retical justification of the foreign trade monopoly. Several leadingParty and Soviet workers, including Bukharin, believed that the of-ficial devolution of economic power should be accompanied by free-dom of trade between Russian and foreign enterprises.5 Lenin andTrotsky opposed Bukharin's initiative. During 1922 and 1923, how-ever, the government changed the complexion of the monopoly-lib-eralizing it initially, then reasserting administrative power overtrade. The government permitted Soviet organizations, but not pri-vate firms, to enter direct agreements in the foreign market. 6Lenin referred to this step as alteration of an absolute monopolyinto a liberal monopoly.7 In addition, the Soviets organized theState Import-Export Bureau with power to enter contracts abroad asthe agent of private enterprises and individuals.8 Private firms re-quired the permission of the Commissariat of Foreign Trade and thegovernment did not allow them to negotiate directly with foreignfirms.In 1923,however, the government increased its ability to coordi-nate imports and exports and began to observe trade negotiationsmore closely. Although the government continued to permit stateenterprises to conduct business abroad, newly created Soviet TradeRepresentatives began to oversee the negotiations.9 The govern-ment placed similar strictures on the contracts involving Russianprivate entrepreneurs that the Import-Export Bureau negotiated.10Although the Bolsheviks' power to prohibit trade transactions ofwhich they disapproved had not yet matured into a power to bringabout transactions which they desired, the creation of Foreign TradeRepresentatives provided a rudimentary organization that wouldlater have this function. During the same time, Korovin, the first So-viet theorist of international law, developed a conception of theworld order that rendered trade ideologically acceptable. Korovinnoted that relations on the basis of intellectual unity (solidarity of

5. Id. at 26.6. Id. at 29.7. Id.8. Sigrist, supra n. 3 at 68.9. Id.10. Id. at 70.

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ideas) between countries of bourgeois and socialist cultures arebreaking apart and the corresponding complex of legal norms is be-coming pointless. 11Korovin, believed, however, that trade agreements, intensiveparticipation in which is necessary for the socialist state in the eco-nomics of the transition period, could exist between bourgeois andworkers' states.12 Such agreements should not be slandered, bycomparing them with traditional contracts between bourgeois gov-ernments.13 These agreements are being concluded and will beconcluded on a platform of more or less broad compromise. Theywill be defined entirely by the political needs of the moment. 14One year later, in 1925,Pashukanis gave Korovin credit for develop-ing the concept of inter-class law to explain the temporary com-promise between two antagonistic class systems 15-a compromisewhich Pashukanis believed would last only until the internationalvictory of proletarian revolution.The government attained the power to plan foreign trade severalyears before it inaugurated a domestic economic Plan. In 1925, re-ferring to internal trade, Party documents state that the industrialPlan must be constructed, not from below, but from above. 16 On 5October of that year the plenum of the Central Committee of theCommunist Party emphasized the necessity of absolute unity of allSoviet organs acting abroad. l7 In the domestic economy, freedomof contract prevailed for two additional years after 1925. The Party'spronouncement on foreign trade, however, sparked immediate aug-mentation of central power. There are several possible explanationsfor this difference in rates of centralization in domestic and foreigncommerce. Dispersed centers of power were more numerous andentrenched in the domestic economy, the political leadership wasunified by 1925on the importance of planning of foreign trade, andthe state apparently owned a larger portion of firms trading interna-tionally than in the domestic economy. Moreover, the Party docu-ments mention only an industrial plan in the domestic context,apparently referring to capital construction. Many leaders expectedinternal market exchange to retain a spontaneous character for theforseeable future. The measure of centralization which the govern-ment enacted in 1925 was the creation of export corporations for

11. Korovin, Mezhdunarodnoe Pravo Perekhodnogo Vremenii 15 (1924).12. Id. at 17.13. Id.14. Id.15. Pashukanis, Mezhdunarodnoe Pravo in Entsiklopediia Gosudarstva i Prava(1925-26).16. Nove, An Economic History of the U.S.S.R. 143 (1972).17. Pozdniakov, supra n. 4 at 54.

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ARMSTRONG: SOVIET CONTRACT LAWtrading in lumber, butter, coal, fiber, fur, and grain.18 The state andeach firm dealing in a particular commodity owned stock in the trad-ing corporation. Member firms sold their goods to the trading firm,which in turn negotiated foreign deals. Thus, after 1925 only oneSoviet firm exported any given product and governmental appoin-tees managed those firms.By 1930the Party had decided that even these joint stock corpo-rations were too constraining on the government's foreign policy.One commentator observes that the Party wished to strengthencentral control over international trade enterprises and to removethe possibility of negative influences of petty sectarian interests onthe execution of general public programs. 19 Political leaders appar-ently believed that managers of state owned enterprises that ownedstock in foreign trade firms were considering the interests of theirenterprises ahead of governmental programs. For fulfilling thetasks of international trade it was not possible to admit the negative,bureaucratic influence of individual shareholders. 20

Thus, in 1930 the U.S.S.R. substantially completed modificationof the first and most important of the three institutions of its foreigntrade-the administrative apparatus. The two remaining institu-tions, the Foreign Trade Arbitration Commission and a theory of theinternational order which justified trade, were in place by 1932 and1935,respectively. The administrative apparatus consisted of foreigntrade firms, capitalized by the government and managed as state en-terprises, through which the U.S.S.R. could coordinate foreign anddomestic planned trade, acquire technology, and generally negotiatecontracts containing terms desired by political leaders. This appara-tus gave the Soviet Union the means to enter contracts favoring itsallies over adversaries, for example.

Moreover, the existence of an administrative arm capable of ef-fecting the myriad goals that the government desired to implementthrough international contracts allowed political leaders to create anostensibly apolitical judicial branch, the F.T.A.C., to enforce thosecontracts. The Soviet commentator Khlestova observes that the gov-ernment organized the F.T.A.C. because transmitting cases to thejurisdiction of foreign arbitration bodies did not satisfactorily an-swer the needs of the Soviet government. 21 Although the Commis-sion implements contracts negotiated between the U.S.S.R. and theforeign firm and thereby gives effect to the conditions and objectiveswhich the agreement included, it applies modes of interpretation

18. Id. at 55.19. Id. at 60.20. Id.21. Khlestova, 40 Let Vneshnetorgovoi Arbitrazhnoi Komissii 1972 Sov. Gos. iPravo 10; 115.

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THE AMERICAN JOURNAL OF COMPARATIVE LAWand rules of law that are acceptable to foreign traders and itpresents itself as an impartial tribunal.In order to justify a judicial system whose mission is to decidecases according to international standards, the Soviets also devel-oped a conception of the contemporary world order and of public in-ternational law that emphasized the harmonious aspects of relationsbetween bourgeois and workers' states. In 1935 Pashukanis re-tracted his observation of ten years earlier that international lawwas now a compromise, inter-class law. Even though the SovietUnion may secure some of its international objectives, Pashukaniswrote, this does not mean that any kind of evolution in interna-tional law is taking place, through which it is changing frombourgeous to socialist. 22 Pashukanis regarded the coexistence oftwo economic systems as a long-term state of affairs in 1935 and hebelieved that the study of international law should better arm usfor advancing the interests of the Soviet state in its external rela-tions with the capitalist world. 23The operation of these three components creates a frameworkin which the parties formally have a large measure of freedom ofcontract, nullified in practice, however, by administrative action.The Soviet conception of the contemporary world order since theearly 1930s has emphasized cooperation between East and West andthe achievement of mutually beneficial objectives. The F.T.A.C.adds to this conception the possibility of enforcing mutually benefi-cial trade contracts. These two elements provide the conceptual andinstitutional underpinning for a significant amount of freedom to ac-quire and dispose of property. They thus add to the appeal of theU.S.S.R. as a trading partner. The operation of the third element,agencies which negotiate and approve contracts, insures that thisformal freedom will not impede attainment of the country's otherforeign trade objectives.

DEFENSES TO BREACH OF CONTRACT IN F.T.A.C. ADJUDICATIONThe remainder of this essay examines the decisions of theF.T.A.C. to determine whether there is, in fact, a strict division of la-bor between that court and the administrative agencies or whetherthe court also attempts to implement objectives other than its publicrelations task, such as those which I outlined in the opening pages.I shall demonstrate that the decisions of the F.T.A.C. adhere to apattern of respect for the parties' allocation of duties and afford sub-stantial security to the firms' property by interpreting obligations ina predictable manner and according to internationally acceptable

22. Pashukanis, Ocherki po Mezhdunarodnomu Pravu 15 (1935).23. Id.

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ARMSTRONG: SOVIET CONTRACT LAWtests. The Commission's decisions implement other objectives, suchas coordinating foreign trade with the Plan only where such a resultdoes not jeopardize the F.T.A.C.'sprimary task.

My thesis is that the F.T.A.C. allows international trading firmsa considerable degree of autonomy inasmuch as in its procedure itgives the greatest importance to the disposition of duties on whichthey agreed. Where the terms of an agreement do not provide for anexigency that occurs during the course of performance, the Commis-sion generally treats the conceptual gap as an intentional result ofnegotiations-a plausible rule in light of the sophistication of the ac-tors in international trade. The underpinning of these and other ca-nons of interpretation that the Soviets apply to internationalcontracts is that the judge shall not treat the property of an interna-tional firm as a means to accomplish the immediate goals of Sovietforeign policy. I shall analyze this thesis by examining three catego-ries of obstacles that may occur in international transactions in or-der to determine where and how the Soviet court places the burdenof overcoming these obstacles. The obstacles I shall examine are1) inadequacies of skill or perseverance of one party that render itunable to perform, 2) acts of nature or of a government that preventor prohibit performance, and 3) alterations in the market that di-minish an actor's interest in performance.

1) Soviet law states that an actor who fails to perform a con-tractual obligation is not liable to the other party unless he is atfault. In other words, the law requires the actor to exert himself ata specified standard of diligence. If he fails to perform because hefell below this standard of diligence, he is liable. If, however, hecould only have performed the obligation by exceeding the standardof diligence required by law, he is not liable. The crucial problemfor the student of Soviet law is to locate and define this standard ofdiligence. Is it an individualized standard that considers the partic-ular actor's resources and skills or is it an objective standard thattries to inculcate contract discipline by requiring greater than nor-mal exertion from the actor?2) Soviet theorists view the concept of fault as pertaining onlyto the actor's sphere of activity, i.e., fault relates to the actor's use ofhis own skill and resources. If, on the other hand, the actor claimsthat he was unable to fulfill his obligation because of an event thattook place outside his sphere of activity, e.g., an earthquake, then heclaims the defense of impossibility. The delineation of eventswithin the actor's sphere of activity from those outside his sphere isby no means clear. Nonetheless, the Soviets view fault and impossi-bility as distinct concepts because internal and external obstaclesare, in principle, different. The important question for the compara-

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THE AMERICAN JOURNAL OF COMPARATIVELAWtivist here is what sort of difficulties socialist judges expect interna-tional firms to be able to overcome.

3) Other events that take place outside the sphere of activityof the actor may lead him to claim, not that he cannot perform, butrather that he no longer wishes to perform. An increase in the mar-ket price of goods he has agreed to sell, diminished consumer de-mand for goods he has agreed to buy, an increase in the cost ofperformance, or a change in the National Economic Plan mightcause a party to have second thoughts about his bargain. The de-fense of change of circumstances presents the necessity of balanc-ing several policies. On the one hand Soviet law recognizes thatparties enter contracts for their mutual benefit and that contractsare justified by the need to improve the material wellbeing of thepopulation. On the other hand is the principle that contracts arebinding.

FAULTUnlike England and the United States, but in keeping with theCivil Law tradition, Soviet law holds a party liable for breach of con-tract only when he is at fault. 24Art. 222 of the RSFSR Civil Codecontains the requirement of fault.A person who fails to perform an obligation or who per-forms it in an improper manner is financially liable only iffault is present (intent or negligence) except in cases speci-fied by law or by contract. Absence of fault is proven by theperson who has breached the obligation.By implication, absence of fault on the part of the promisor is irrele-vant where the promisee seeks only the delivery of the contracted-for goods, without requesting monetary damages. This implicationis incorrect, however. Fault is required for either monetary reme-dies or specific performance of the contract.25 Fault is irrelevant,however, if the vendor delivers defective goods and the buyer seeksreplacements.The Code does not describe the sphere of applicability of theconcept of fault beyond stating that it requires intentional or negli-gent conduct. May the nonperforming party claim that he is not atfault when performance is hindered for any reason, or is the court'sconsideration of fault limited to a narrow range of obstacles to per-formance? Several Soviet commentators maintain that fault per-tains only to the sphere of control of the actor, while other legal

24. The German Civil Code (Burgerliches Gezetzbuch) provides at ? 285: ' Thedebtor is not in default due to delay so long as nonperformance is due to a circum-stance for which he is not responsible.25. Ioffe, Obiazatel'stvennoePravo 190 (1975).

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ARMSTRONG: SOVIET CONTRACTLAWexcuses for nonperformance relate to events outside the actor'ssphere of control.26 Matveev contrasts accident, i.e., absence offault, with force majeure, impossibility. An accident, according toMatveev is a supervening event that entails a link, although not ablameworthy link, between the actor and the resulting harm. Forcemajeure, however, is a supervening event that only by chance af-fects the actor. Thus, an accident results from some personal short-coming on the part of the actor, such as lack of skill. Force majeureis an event that would hinder anyone who happened to be in the ac-tor's geographical location. Acts of nature are in the category of im-possibility, even if they occur in the actor's factory, because theirconnection with the actor is a matter of chance.1. Standard of Care

The defendant is not liable if nonperformance results from hisblameless failure to apply certain skills to his task. The Civil Codedoes not, however, define the level of skill that the law expects ofthe actor and commentators disagree strongly on this question. Isthe actor expected to use the skill he possesses in the most effectivemanner? Is he expected to apply the skill and perseverance of theaverage actor in his position? Is he expected to meet the standard ofskill and perseverance of an actor in the vanguard of society who isever conscious of the task of building socialism? Soviet commenta-tors differ in their view of the level of skill that the law expects ofthe actor because they disagree on the proper means of achievingthe agreed upon policy of maximum performance of contracts.Some commentators prefer a standard of fault that is highly in-dividualized and considers the standard of skill, experience, and so-phistication of the particular actor. These theorists maintain that anindividualized standard of fault encourages the formation and per-formance of contracts. Rakhmilovich, for example, believes that theessence of fault is the actor's failure to use the capacity that he pos-sesses.27 Where the law confers liability for failure to use abilities

26. Ioffe, Sovetskoe Grazhdanskoe Pravo 473 (1958); Shvarts, Znachenie Viny vObstoiatel'stvakh z Prichineniia Vreda 51 (1939);Matveev, Osnovaniia GrazhdanskoiOtvetstvennosti 155 (1970). Agarkov,on the other hand, says there is no valid reasonto distinguish between events which are outside the sphere of activity of the actorand those within his sphere of activity. Voprosy Sovetskogo Grazhdanskogo Prava115,121(1945).27. Rakhmilovich, K Voprosu o Soderzhanii Grazhdanskoi Viny, 5 UchenieZapiski VIuZI 134;Antimonov, Znachenie Viny Poterpevshego pri GrazhdanskomPravonarushenii 97, 100 (1950); Novitskii and Lunts, Obshchee Uchenie ob Obia-zatel'stve 326,327 (1950). Where the defendant failed to deliver the goods because ofinsufficient production funds and the court found that he had used all means withinhis capacity to secure funds, there was no fault. See: Petrov, Umenshenie Arbi-trazhem Razmera Otvetstvennosti Dolzhnika in 4 Nauchno-Prakticheskii Kom-mentarii Arbitrazhnoi Praktiki 67. On the other hand, where the defendant claimed

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THE AMERICANJOURNAL OF COMPARATIVELAWthat the actor does not have, the result is liability without blamewor-thiness. Fault becomes a legal fiction. Rather than becoming morevigilant, the actor is demoralized.Amfiteatrov favors a more finely calibrated scale of individuali-zation.28 He maintains that the court should determine the level ofperformance that the actor can sustain, then determine the level ofthe actor's actual performance and fix the level of liability by ascer-taining the difference between these two measures. The court thusreduces liability according to the degree of the actor's perseverance.Amfiteatrov claims that this method strengthens the principle ofcontractual responsibility because it judges the actor by his use ofhis own potential.Some commentators note that individualization of the standardof fault does not always favor the defendant. According to An-timonov, the court should expect more faithful performance of con-tracts from individuals and enterprises who have advanced beyondthe average level of development or who understand the connectionbetween their behavior and their obligations with unusual clarity.[T]he greater the physical and spiritual development of the indi-vidual, the more calmly he may act the more clearly and simply thesituation has come upon him; the greater is the basis for determin-ing that the actor is at fault.29These theorists believe that economic actors will more willinglyassume contractual obligations and more faithfully perform thoseobligations if they understand that courts will assess their perform-ance by a standard that is keyed to the actor's own skill and eco-nomic sophistication. A second group of theorists, on the otherhand, maintain that the purpose of the concept of fault is to elevatethe average level of performance to the standard of the vanguard.In conditions of socialism it is acceptable to compare, not with theaverage citizen, but with the better citizen, with the vanguard organ-ization. 30By applying an objective standard of fault that definesacceptable performance by the standards of optimal performance,the court combats passivity and indifference and can inculcatemaximum foresight and discipline. 31

that he was not able to ship the agreed quantity of accordians because its supplierhad not sent a sufficient number of the musical instruments, the court ruled that theenterprise had not performed at maximum capacity because it had not sought an in-crease in shipment from the supplier. Case No. 5/901 - 1955,Gos. Arb. pri Sov. Min.SSSR.28. Amfiteatrov,Osnovnye Cherty Zakonoproekta o Dogovorakh 45 (1934).29. Antimonov, supra n. 27 at 102.30. Matveev, supra n. 26 at 280.31. Id. at 281. According to the criteria of the vanguard the court should notconsider a claim that the actor's lack of expertise prevented performance of the con-tract. The defendant is at fault because he has been slow to adopt new technology.Accord: Semenova and Riabinskii, Otvetstvennost' za Nedopostavku Produktsii i

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ARMSTRONG: SOVIET CONTRACTLAWThis disagreement among theorists on the nature of fault is anargument about means rather than ends. Since the mid-1930s Soviettheorists have conceived of contract law as an acceptable method ofdirecting human behavior in socialist society. According to Ioffe,law is used by the Soviet state in the goal of securing that behaviorof people which answers the requirements and tasks of Communistconstruction. 32 In particular, the purpose of all contractual rela-tions is to build the material and technical basis of communism.33In domestic law the conflict between proponents of individual-ized and objective criteria of fault is merely a small corner of alarger disagreement on the interrelated problems of the properbounds of national planning, the best means for promoting eco-nomic efficiency, and the right of the person or firm to dispose ofproperty freely. The underlying issue of this larger disagreement iswhether all legitimate power to allocate resources shall be vested inthe planners or whether firms and individuals shall also make somesignificant decisions on the use of resources. Proponents of the ex-clusivity of planning generally view all contracts, even those notwithin the domain of the Plan, as auxiliary and subsidiary to na-tional priorities. One critique of this theory notes that, according tosome of its advocates, the private person amounts to no more thana predicate in the mechanism of economic administration. 34 Undera theory that conceives of individual actors as merely implementingcentrally-made decisions, the state of mind of the actor in relation-ship to his task or the extent of his perseverance are unimportant.Failure to meet the obligation in itself brings liability.The opposing theorists, who believe that a measure of decentral-ized, self-interested decision making is permissible in a planned so-ciety, advocate greater rights of free use and distribution of property

for individuals and firms. A subjective standard of fault, a system inwhich people take responsibility for their decisions according totheir ability to execute those decisions, is a corollary of self inter-ested decision making for these theorists. According to these writ-ers, the law should encourage individual production and distributionof goods by applying a standard of fault that incorporates a measureof retribution-i.e., the judge should expect those who possess moreskill to make use of it.Tovarov 33 (1964). Similarly, where the defendant claimed that construction of cer-tain equipment was necessarily delayed because of numerous technical changes, thecourt refused to consider the defense of no fault. The defendant's fault was obvi-ous because the work could have been completed on time with the necessary exper-tise and foresight. Case No. 4/66 - 1955,Gos. Arb. pri Sov. Min. SSSR.32. Ioffe, supra n. 21 at 3.33. Id. n. 25 at 8.34. Bratus, 0 Sostoianii Teoreticheskoi Raboty po Sovetskomu GrazhdanskomuPravu 1937Sov. Gos. i Pravo 1-2;48, 60.

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THE AMERICANJOURNAL OF COMPARATIVELAWThe conflict between Soviet jurists who advocate individualizeddetermination of fault and those who prefer objective criteria is anabstract disagreement. In other words, once jurists begin to con-sider a particular sphere of contractual relations, such as contractsbetween international firms, there is more agreement on the appro-priate standard of fault. The majority view advocates individualizeddetermination of fault in litigation between individuals and objec-tive-vanguard criteria in disputes between socialist enterprises. Ac-cording to the Soviets, the criteria of fault in international litigationis the level of skill and perseverance that is usual in suchtransactions .35

2. Standard of Care in International LitigationNo Soviet author advocates the use of customs of trade as cri-teria of fault in litigation involving internal contracts because thegovernment considers contract performance to be too important toallow the market to determine the level of contractual discipline.Thus, the criteria of fault that jurists consider appropriate for exter-nal commerce falls outside the bounds of discourse on standards offault appropriate for socialism. The Soviets do not, however, viewthe application of a nonsocialist concept of fault in international liti-gation as a contradiction with socialist ideology. According to theSoviets, law must always take the form appropriate for the stage ofdevelopment of the society that it regulates.36 The internationalmarket is primarily capitalist. Rather than advancing norms fromtheir internal regulation of contracts as rules applicable in interna-tional litigation, the Soviets apply rules that are more acceptable toforeign traders inasmuch as they recognize the greater right toalienate and profitably use property that people possess under mostother legal systems.Although commentators disagreed on the proper stance of theUSSR toward the international order during the first years after theOctober revolution, in 1935 E.B. Pashukanis summarized the viewthat had congealed as official policy: The matter may not bepresented as though the international legal practice of the USSRshould consist totally of advocacy of some sort of new concepts andcustoms. 37

35. Rosenberg, 1976Foreign Trade 3; 26, 30. Berman, 63 Col. L. Rev. 1413 (1963).In international practice and in common law jurisdictions, total inability to performwill not remove liability if this inability results from lack of resources. Berman saysthis rule is applied in most jurisdictions.36. Rightcan never be higher than the economic structure of society and its cul-tural development conditioned thereby. Lenin quoting Marx, State and Revolu-tion, in TheLenin Anthology, Tucker (ed.) 377 (1975).37. Pashukanis, supra n. 22 at 15.

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ARMSTRONG: SOVIET CONTRACTLAWContemporary Soviet theorists reason that a norm of law maysimultaneously serve the interests of both capitalist and socialist na-tions.38 States with antagonistic social systems follow the same ruleof conduct if the rule is mutually profitable for them at the particu-lar time and in the particular balance of forces. 39 The Soviets em-phasize that mutual profitability is a cornerstone of theirinternational contract policy.40 From the Soviet point of view, profitderives from the maximum use of international economic links forthe attainment of the great goal of construction of communist soci-

ety and the increased tempo of the national economy ... . 41Government policy attempts to make the Soviet Union an at-tractive trading partner for firms in other countries. Therefore, al-though the Soviet Foreign Trade Arbitration Commission appliesthe principle of fault in litigation involving a foreign party,42 the con-tent of this principle is not supplied by socialist domestic law but in-stead by the practice of international traders from all countries. TheSoviets reason that no foreign firm should object to having its claimthat it is not at fault evaluated according to the measure of dili-gence usual in such relations.As a result of the definition of fault that the Soviets apply in in-ternational litigation, fault approaches strict liability. In order toexcuse his breach with a defense of no fault, the defendant mustshow that he could not perform in spite of his use of the level ofskill that usually prevails in the performance of an internationalcontract. Because the typical international trader is a sophisticatedorganization, a high standard of contractual diligence is customaryin international transactions. The burden of persuasion on the de-fendant is, therefore, very heavy.As Gribanov notes, a collective of individuals, engaged in busi-ness as a juridical person, commands a substantially higher degreeof foresight than a single individual.43 Thus, the Soviet court ex-pects a juridical person to foresee obstacles to performance and to

38. Aleksidze, 0 Klassovoi Prirode Sovremennogo Mezhdunarodnogo Prava 1967Sov. Gos. i Pravo 6; 51, 57.39. Id.40. Genkin (ed.), Pravovoe Regulirovanie Vneshnei Torgovli SSSR 132 (1961).41. Buvailik (ed.), Vneshnepoliticheskaia Programma XXV S ezda KPSS vDeistvii 155 (1978).42. Pozdniakov (ed.), Eksportno-ImportnyeOperatsii 72 (1970). ' Thequestion ofthe liability of the seller/debtor with regard to the obligation to transfer the goods... is decided according to the general principles of the Soviet law of obligations.Accord: Szasz, A UniformLaw on International Sales of Goods 158 (1976);Ramzait-sev, VneshnetorgovyiArbitrazh v SSSR 125 (1957);Genkin, supra n. 40 at 132.43. Gribanov, Otvetstvennost' Storon za Nedopostavku po Dogovoru Postavki,in Novitskii (ed.), VoprosySovetskogo Grazhdanskogo Prava v Praktike Suda i Arbi-trazha 373,374 (1959). Ajuridical person is a definite collective of people performingthe activity of this juridical person, a collective which without doubt commands widercapacity for foresight than a single citizen.

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THE AMERICAN JOURNALOF COMPARATIVELAWprepare for them with greater facility than an individual. The dis-parity between corporate and individual abilities is even greaterwhen the corporation is an international trader.If the defendant is able to convince the court that he could notperform the obligation by using the level of skill that is customary ininternational contracts,44 he may unwittingly have opened a secondtrap door to liability in the process of closing the first. Under Sovietlaw, fault not only occurs when the actor inadequately mobilizes hisresources to meet the obligation, but also when the actor exercisesinsufficient foresight in selecting his obligations.45 By demonstrat-ing that he took on an obligation that he could not fulfill even withthe skill that international traders customarily possess, the defend-ant is probably demonstrating simultaneously that he entered thecontract without adequately considering how he would perform it.46Because the standard of adequate foresight in selecting obligationsis also measured against the customary practice of internationaltraders, the defendant must show that his error in judgment couldhave been committed by the typical transnational corporation. Con-sidering the amount of corporate planning that generally precedesformation of contracts of transnational magnitude, the breacherfaces a very heavy burden.Considering the high standard of fault in international con-tracts, it is not surprising that one commentator characterized thepractice of the Soviet Foreign Trade Arbitration Commission asrather strict in applying the defense.47 For all practical purposesthe defense is unavailable. During the entire period for whichrecords exist (1935-1965) no litigant before the Soviet F.T.A.C. hasurged absence of fault as a defense to its breach.48 Superficially itappears that Soviet legal theory proceeds from an a priori concep-tion of the international firm as an organization having perfect selfcontrol and that from the premise of perfect self control the Soviets

44. Ramzaitsev, supra n. 42 at 126. The defendant is not required to show the ab-sence of any possibility of fault as this would require him to prove a negative. He isrequired to show the existence of a circumstance which negates fault.45. Antimonov, Osnovaniia Dogovornoi Otvetstvennosti Sotsialisticheskikh Or-ganizatsii 59 (1962).46. Zamengof, Izmenenie i Rastorzhenie Khoziaistvennykh Dogovorov 104 (1967).47. Szasz, supra n. 42 at 157.48. DIA Tekstil v. Raznoeksport, infra n. 65 at 42 involved an exporting firmwhosesuppliers were unable to deliver cattle, causing in turn Raznoeksport to breach itscontract to supply DIA Tekstil. If the shortage had been caused by Raznoeksport'sfailure to request an increase in the planned allotment of cattle, the court would haveanalyzed the case in terms of fault. The shortage resulted, however, from a drought.The court analyzed the drought as a question of impossibility because the alleged ob-stacle to performance was outside the export firm's sphere of activity. F.T.A.C.ana-lyzes failure of the defendant's supplier to perform as a sui generis defense. If thedefendant shows that performance by his supplier was impossible then the defend-ant's own breach may be excused.

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ARMSTRONG: SOVIET CONTRACT LAWderive the rule that the firm guarantees to overcome all obstacles toperformance that occur within its own sphere of activity. In fact,however, the Soviets do not approach the question of fault in inter-national contracts by using an a priori conception of the nature ofthe firm. They synthetically derive the concept of fault in interna-tional contracts. The Soviets develop the criteria of fault from thecollective experience of international transactions. Because this ex-perience shows that transnational actors are not generally hinderedby obstacles occurring within their own sphere of activity, the crite-ria of fault are very demanding. In spite of the fact that identicalcriteria of fault emerge from both an a priori and a synthetic ap-proach to conceptualization of fault, these two approaches are quitedifferent.Under this synthetic approach to fault the actors collectivelyhave the power to fix the standards by which the court will judgetheir performance. This power to fix the standard of fault belongs tointernational traders as a class rather than to any of them individu-ally. In general, contractual probity is in the interests of this classeven though in particular cases a trader might prefer a more laxstandard of fault. Art. 222 of the Civil Code leaves such firms free toagree in advance that they will employ a lower standard of care.Thus the Soviets use a concept of fault that coincides with theirobjective of formulating norms of international law that are mutu-ally profitable to the parties. The synthetic standard protects theforeign firms' expectations of profit because the F.T.A.C. judges theenterprises' performance according to customary performance.Moreover,the Code specifically allows firms to agree to levels of dili-gence that differ from the normal standard and thereby create vary-ing levels of security that the court will compel their partner toperform. Thus, jurisprudence in the area of fault tends to verify thethesis of this essay that the F.T.A.C. applies rules acceptable to in-ternational traders. Moreover, the customary level of diligence ininternational trade also promotes the objective of coordinating for-eign and domestic commerce. The customary standard of diligence,which is so demanding, facilitates enforcement of foreign contractsand assures internal firms which are expecting to receive importedgoods that the F.T.A.C.will not find their contracting partner's lackof skill to be excusable.

IMPOSSIBILITYFrom the standpoint of the capacity of international firms to fixby agreement the terms under which they will acquire or dispose ofproperty, the category of obstacles causing impossibility of perform-ance is the most important of the three topics that this essay consid-

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THE AMERICAN JOURNAL OF COMPARATIVE LAWers. Contractual clauses relating to impossibility frequently listspecifically the events which will be deemed to constitute insupera-ble force. These clauses may be the product of contentious negotia-tion relating to the distribution of risks between the parties.Moreover, in a transaction between sophisticated firms, the failureof the parties to mention a particular event in the list of obstaclesthat constitute impossibility may create a presumption that thenegotiators intended the party who experiences the obstacle to over-come it. Therefore, the F.T.A.C.'s record in litigation involvingforcemajeure clauses actually reveals the degree of that court's respectfor the parties' distribution of costs more clearly than litigation inareas such as fault where the court more frequently infers anagreement. This section includes discussion of the capacity of theparties to draw an enforceable agreement that certain obstacles willconstitute impossibility in addition to analysis of the F.T.A.C.'s dis-tribution of costs between the firms where an obstacle is not men-tioned in the contract.Elements of Impossibility

Art. 235 of the RSFSR Civil Code is the basis of the defense ofimpossibility of performance. An obligation is terminated throughimpossibility of performance, if such impossibility has been causedby circumstances for which the debtor is not responsible (Art. 222).The Soviet commentator Bardina has summarized the doctrine ofimpossibility as applied by the Soviet Foreign Trade ArbitrationCommission: It is generally recognized that utter impossibility forone party to perform the obligation does not, without more, removethe obligation. 49 Otherwise, writes Bardina, the parties would haveno stimulus to use their utmost efforts. Art. 235 and Bardina's glossare applicable, however, only in litigation involving obstacles thatthe parties did not include in aforce majeure clause.To provide the basis for a defense of impossibility, an event notwithin theforce majeure clause of the contract must be unforeseen,extraordinary, and the obstacle that the event presents to the actormust be unpreventable.50 The event must also be the factual causeof failure to perform.51 Thus, an earthquake in the region of the ac-tor's factory will not excuse the actor's failure to deliver unless theearthquake actually prevents performance. Similarly, if the contractcalls for the delivery of generic goods and natural disaster destroysthe actor's total stock of goods, delivery is not factually impossible

49. Bardina, Obstoiatel'stva Osvobozhdeniia ot Otvetstvennosti KhoziaistvennykhOrganizatsii vo VneshnetorgovykhOtnosheniiakh Stran Chlenov SEV 1975Sov. Gos. iPravo 12;115.50. Rosenberg, supra n. 35 at 26;Bardina, supra n. 49 at 116.51. F.T.A.C.Case No. 131/1970, n Ramzaitsev, supra n. 42 at 142.

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ARMSTRONG: SOVIET CONTRACTLAWbecause the actor may acquire a new stock on the market.52 OneEast European commentator notes that this requirement to resup-ply from the market is a particular hardship for enterprises from aplanned economy where there is no market.53 The plan allots allproduce to specific tasks and replacement of destroyed goods,which, while sometimes required, is not feasible.54Because the rule that a person selling generic goods that perishbefore delivery is also a part of Anglo-American law and in light ofthe hardship this rule causes to firms from planned economies, thepresence of this norm in Soviet international contract law appearsto be a concession to the U.S.S.R.'s Western trading partners. Thisappearance is deceiving, however, inasmuch as Soviet courts applythis rule uniformly to contracts between Soviet citizens, between in-ternal socialist enterprises, and between firms which reside in mem-ber states of the C.M.E.A., as well as to contracts in theinternational capitalist market. The Soviets require the seller to re-place generic goods that perish before delivery because they viewall contracts, both within and without the Plan, as fulfilling the pub-lic purpose of transferring goods from the collective farm to the cityor from the point of production to the point of use. This rule is avestige of the notion, much more influential in the early 1930s thannow, that all contracts are auxiliary to the Plan and that their forma-tion creates an obligation to the state to carry forward performance.In addition to being the factual cause of impossibility, the eventmust have been unforeseen at the time of contracting in order to ab-solve the actor of liability.55 The F.T.A.C. has given the term un-foreseen a restrictive meaning. The court makes no attempt todiscover whether the breacher foresaw the occurrence of the event,nor does the court consider whether the actor should have foreseenthe event. The court defines foreseen as provided for in the con-tract. If, at the time of contracting, the parties considered that anevent might occur that would hinder performance and the partiesprovided that performance should go forward in spite of the hin-drance, the event was foreseen. 56This method of interpretation places greater significance on the

52. Goikhbarg,Khoziaistvennoe Pravo RSFSR 121 (1923).53. Szasz, supra n. 42 at 163. Free production capacity waiting for supplemen-tary orders is not characteristic in trade between member states [of C.M.E.A.], norare goods manufactured ahead of actual requirements.54. It appears that the Plan gives no special priority to international obligationswhere providingreplacement goods for international delivery would require cancella-tion of a domestic delivery. Failure to reorient the Plan once an obstacle has oc-curred may be a result of the complexities of the planning mechanism.55. Contrast the Anglo-American formulation unforseeable with the Sovietterm unforseen . Domke, 53Am. J. Int. L. 787,793 (1959).56. Jordan Investments Ltd. v. Soiuznefteksport, II F.T.A.C.140,144 (1958).

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integrity of the contractual document than do methods of interpreta-tion that purport to discover what the party actually foresaw. Thecourt will not look beyond the veil of the document to discoverwhether the parties discussed contingent events and their effect onperformance. The F.T.A.C. has said that the parties have completefreedom to agree that performance shall go forward in spite of anexigency and that the contract is the complete statement of the par-ties' agreement on this subject.57The legal right of the parties to agree in the contract that per-formance shall go forward accords with the Soviet policy of com-plete performance of contracts. All international contracts to which

a Soviet enterprise is a party are included in the National EconomicPlan. The acquisition of the contracted-for goods is of interest to theSoviet state, as well as to the contracting firm. Failure to performthe contract may affect numerous internal construction and produc-tion projects. Thus, the Soviets advance a rule of law that supportsthe integrity of the contractual document and the power of the par-ties to shape the outcome of their transaction.Although the F.T.A.C. and commentators agree that the negotia-tors have complete freedom to decide that performance shall go for-ward despite any exigency, one writer believes that the parties donot possess the converse right, i.e., the freedom to denominate anyobstacle that they choose as insuperable. Bardina states that theparties may not bind the court to recognize that an event cannot beovercome.58 In other words, an event is not insuperable merely be-cause the parties agree to say that it is. According to Bardina, theparties may only provide analysis of the specific peculiarities con-nected with the performance of every contract. 59 He believes thatthe power of the parties to agree that certain events constitute im-possibility extends only to the right to enumerate obstacles that areof singular significance to the particular contract. If Bardina is cor-rect, this rule diminishes the security of the firm in its property bydecreasing its power to provide for contingencies. The author'sclaim that Soviet law restrains the parties in this respect is not sup-ported, however, by any other commentator or by a reported deci-sion of the F.T.A.C. Moreover, a Soviet firm could not agree innegotiations to include a clause denominating a particular event asinsuperable unless the Ministry of Foreign Trade gave its approval,

57. Id. and V/O Tekhnopromimportv. Marconi-Ecco Instrument Ltd, I F.TA.C. 59(1940).58. Bardina, supra n. 49 at 117. Ramzaitsev, however, places no limits on thepower of the parties to agree that an event will constitute impossibility. DogovorKupli-Prodazhi vo Vnehnei Torgovli SSSR 117 (1961).59. Bardina, supra n. 49 at 117.

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ARMSTRONG: SOVIET CONTRACTLAWand a term which is obnoxious to the public policy of the U.S.S.R. isunlikely to pass official scrutiny.Where the contract does not provide for the occurrence of a par-ticular obstacle, either by specifying that the event shall constituteimpossibility or by stating that performance shall go forward despitethe hindrance, the firm seeking relief from the obligation must showthat the obstacle is extraordinary. From the standpoint of auton-omy the problem of defining extraordinary events has been muchmore significant in internal Soviet law than in international practice.Between 1928and 1965,when the legal establishment had the leastinterest in protecting the expectations of individuals and socialistfirms to security of property, courts were reluctant to find that anyevent was sufficiently extraordinary to relieve liability.60 Judgestended to declare that particular obstacles could never be groundsfor a determination of impossibility, irrespective of their impact onthe petitioning firm. During N.E.P., and to a certain extent after1965, however, the government believed that judicial respect fortraders' interest in profit would encourage trade. Judges attemptedto establish rules on impossibility of performance that traders wouldregard as fair. Thus the R.S.F.S.R. Supreme Court held in 1925thatit is impossible to list the events that can constitute an insuperableforce.61 The judge must discover the effect of the event on the con-tractual obligation in each case, considering the level of technologyavailable to the actor, the geography of the region, and any peculiar-ities of the goods in question. Moreover, as Goikhbarg noted in 1923,an obstacle which is for one party insurmountable may be easilyovercome by another party. 62The F.T.A.C. has never regarded either categories of obstacleswhich are insuperable or individualized analysis of the ability of the

particular firm to overcome its difficulty as a proper means of inter-preting international contracts. Both approaches would be counter-productive in relation to the Commission's objective of presentingitself to foreign firms as an acceptable court. The application of cat-egories of obstacles to difficulties in performance would yield arbi-trary results that are unrelated to the actual burden of goingforward with performance. Individualized analysis of the firm's ca-pacity to overcome the hindrance might appear to allow the F.T.A.C.too much flexibility and lead to claims that the Commission rendersdecisions without standards.In order to formulate a standard acceptable to the internationalcommunity of traders, the F.T.A.C. has accorded primary impor-

60. Agarkov,supra n. 26 at 118.61. Id.62. Goikhbarg,supra n. 52, 121.

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THE AMERICAN JOURNAL OF COMPARATIVE LAWtance to firms' expectation that, once they have negotiated the manyminute details of transnational contracts and have ordinarily fixedthe level of compensation to accord with the distribution of risks,the final document will be a virtual guarantee of performance. As acorollary to the premise that all contractual terms are resolved innegotiations, the Commission assumes that gaps in the provisionsare often a result of a decision not to shift the burden of overcomingan obstacle away from the party who encounters it. The F.T.A.C.mitigates the strictness of this rule, however, by consideringwhether the type and magnitude of the obstacle that actually oc-curred indicate that the court should not assume that the burdenedparty took this risk upon itself. This factor is probably alsogrounded in a Soviet notion of the expectations of internationalfirms inasmuch as companies do not ordinarily assume burdens thatthey are incapable of overcoming, and managers of those firms, con-sidering the matter abstractly, would not want courts to surmiselightly that they had assumed a burden that is for them inherentlyinsurmountable.2. Acts of Nature

The F.T.A.C. has considered two cases in which the defendantclaimed that an act of nature rendered performance impossible. InMetalimeks v. Rudmetal the defendant maintained that an earth-quake damaged the factory so that it could fulfill only 41%of its pro-duction target for that year.63 F.T.A.C.released Rudmetal from 59%of its obligation to Metalimeks. Using 41% of its production capac-ity, Rudmetal might have completely performed some of its con-tracts if it had been relieved of others. The F.T.A.C. would not,however, allow the defendant to choose which contracts would goforward and which would be cancelled.64 All of Rudmetal's obliga-tions stood on an equal footing and must be 41% performed. An-other interesting aspect of the decision is the court's ruling thatRudmetal need not secure replacement from the market of the miss-ing 59%of the goods. The object of the contract, iron ore, was a ge-neric good. Although Rudmetal could not have secured replacementore under conditions of a planned economy, the court might have re-quired the defendant to pay damages for the expenses incurred byMetalimeks in securing cover.

In the second case, DIA Tekstill' v. Raznoeksport, the defendantwas obligated to deliver longhorn cattle.65 Bad weather in various63. Ramzaitsev, supra n. 42, 150.64. U.C.C. ? 2-615(b) allows the seller for whom performance of all obligations isimpractical to allocate his production among his various buyers in any mannerwhich is fair and reasonable. He may prefer his regular customers in his allocation.65. IV F.T.A.C. 160, 191 (1965).

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parts of the Soviet Union had diminished the supply of feed grass,causing the death of many cows. Raznoeksport did not, however,own any cattle. The Plan had allotted the cows to Raznoeksport sothat it could meet its export obligations. The F.T.A.C. held that theunavailabilitly of the cattle that Raznoeksport had been allotted didnot create impossibility of performance and the Commission re-fused to release the defendant from its obligation. In the presentcase, the F.T.A.C. observed, there actually was a situation imped-ing performance by the defendant of its contractual obligations, butthis may not relieve it of its liability for untimely delivery. 66The F.T.A.C. apparently reached different results in these twocases, requiring Raznoeksport to secure replacement cattle and paymonetary damages but absolving Rudmetal of 59% of its obligation,because of the type of business in which the two firms were en-gaged. Rudmetal was a single firm involved in the production andselling of its own ore. Raznoeksport, on the other hand, was an or-ganization that exported a wide variety of goods, none of which itproduced itself. Raznoeksport was in the business of securing goodsfor delivery from other parties. Rudmetal obligated itself to ship itsown ore rather than to secure ore for delivery to the buyer. TheF.T.A.C. seems to have believed that a producing or mining firmwould not ordinarily assume the risk of acquiring replacements if itsoperations were curtailed by natural disaster. Raznoeksport, on theother hand, had simply agreed to sell cattle and because the firmowned no cattle this commitment necessarily obligated it to securelonghorns from others. The F.T.A.C. believed that Raznoeksport as-sumed the risk that the animals it intended to deliver would beunavailable.These cases illustrate the notion that the F.T.A.C. applies thedefense of impossibility in accordance with the commercial expecta-tions of the parties. The Commission found no language in eithercontract that would indicate that the negotiating firms distributedthe risks of performance in an unusual manner. In these instancesthe court believed that the identity, i.e., the usual course of busi-ness, of the seller determined the buyer's reasonable expectationswith respect to replacement goods.

3. Civil Disturbances and Act of StateThe F.T.A.C. has considered the effect of social unrest on con-tractual performance on five occasions. Collectively these casestend to confirm the hypothesis that the Commission respects theparties' agreement on distribution of risks and that it enforces theterms under which they choose to obligate themselves.

66. Id. at 163.

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THE AMERICAN JOURNAL OF COMPARATIVE LAWIn Van de Hayden v. Eksportles the defendant failed to deliverthe agreed quantity of goods to the buyer.67 Eksportles hadchartered one ship that was involved in a collision and put out ofservice. On the following day Britain declared war on Germany.[T]he beginning of the war led to an almost complete terminationof all freight market activities. 68 The contract contained a verybroad clause on impossibility of performance, allowing the seller tocancel on account of any 'force-majeure circumstances. 69 TheF.T.A.C. noted that Eksportles had no vessels of its own and that ithad displayed ' proper care to locate a ship.70 In light of the effectof the declaration of war on the availability of vessels, Eksportlescould only have been liable for failure to perform if the contract con-tained a guarantee of delivery. The breadth of the force majeureclause indicates that the firm obligated itself to a much lower stan-dard of diligence.A second case involved a Turkish firm that was obligated to shipgoods to a Soviet organization.71 At the time for performance Turk-ish ships required special permission to sail to foreign ports. Inabil-ity to secure this permission seems to have been the defendant'sprimary excuse for nonperformance. The F.T.A.C. noted that the

contract did not require shipment on a Turkish vessel and suggestedthat the defendant locate a ship of foreign flag. There is no indica-tion that the F.T.A.C. placed an excessive burden on the firm. Ap-parently, the defendant had made no effort to find a foreign vessel.In this case the obstacle that the seller relied on as an excuse wasnot the factual cause of its failure to perform. The Commission be-lieved that, under the terms of the agreement, the buyer was enti-tled to demand that the seller search for a foreign vessel.The case of Eksportles v. Leo Peltenburg best illustrates theF.T.A.C.'s respect for a distribution of risks between the parties thatis the obvious result of a bargain.72 The defendant was the plain-tiffs agent for selling certain goods in the Canary Islands. The con-tract provided that Leo Peltenburg was to pay the plaintiff in poundssterling, regardless of the currency in which the defendant made thesale. After the time of contracting, the Spanish government prohib-ited the exchange of Spanish currency for foreign currency. Ekspor-tles argued, and the Commission found, that the risk that LeoPeltenberg would not be able to convert local currency into pounds

67. I F.T.A.C. 62 (1941).68. Id.69. Id. at 64.70. Id. at 67.71. V/O Vostokintorg v. Sumerbank Kombinat Tselliuoznoi Promyshlennosti, inRamzaitsev, supra n. 42 at 143.72. I F.T.A.C. 24 (1939).

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ARMSTRONG: SOVIET CONTRACTLAWsterling is covered by the extremely high rate of remuneration paidby V/O Eksportles as regards transactions on the Canary Islands. 73Having bargained for the high rate of compensation, the firm be-came a guarantor of the obligation to convert the currency.A case involving the sale of goods manufactured in East Ger-many to a Soviet buyer indicates that the F.T.A.C.will also enforce abargain that is the converse of the obligation in Leo Peltenburg.74 InDiamash v. Tekhnopromimport the German firm had obligated itselfto a lower standard of diligence than is customary in internationalcontracts. A term in the agreement allow(ed) prolongation of theperiod of delivery in the event of the onset of circumstances hinder-ing observance of the contractual period. 75 When the goods arrivedin the Soviet Union late, the buyer sought damages and withheldpart of the purchase price. Diamash claimed that in order to manu-facture the goods it had ordered several necessary parts from WestGermany. American authorities in West Germany delayed thetimely delivery of the fittings. This delay resulted in a correspond-ing delay of the finished product to the Soviet firm. F.T.A.C. ruledthat the East German firm had taken all measures within its powerto fulfill the obligation and that the Soviet firm was not entitled todamages.In the final case relating to civil disturbances, a Soviet exportfirm agreed to sell oil to Degviela, a Belgian firm.76 Degviela agreedthat the oil would be used only in certain specified countries. Theoil became the property of Degviela at the Black Sea port where itaccepted delivery. Soon after Degviela left port with the oil, its shipwas captured and impounded by French authorities. According tothe contract, the oil could not be used in France. Nonetheless,F.T.A.C.denied the Soviet firm's request for damages. Degviela, thecourt said, had no power to prevent the French government from im-pounding and using the oil. Ramzaitsev observes that the Commis-sion concluded that Degviela was not responsible for the breach onthe basis of the terms of the contract concluded between theparties. 77

Finally, the most famous case that the F.T.A.C. has decideddealt with several problems relating to the right of the parties toagree on the conditions under which the obligation shall go forwarddespite the occurrence of

the problem of autonomy in soviet international contract law

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