(Sorry for the long delay in responding - I have been on vacation)
BJI and NPR99 have it mostly right. The local failure mode is a rare but real failure mode related to loss of ductility.
There are two phenomenon going on:
1) Our method of relating multi-axial stress states to the uniaxial stress state for ductile materials is through the von Mises yield criteria (the pre-2007 VIII-2 and the current III use(d) Tresca). In that formulation, the invariant used relies on the differences between the principal stresses - in a square root sum of the squares of the differences for von Mises and the max difference for Tresca. Either way, in a state of pure triaxial stresses, the difference are zero and the invariant becomes zero - regardless of the magnitude of the individual principal stresses. This leads to a numerical breakdown of sorts.
2) In a state of high triaxiality, the material will behave in a more brittle fashion. Of course, this switches failure criteria from von Mises to Max Principal Stress - although the switch-point is difficult to pin-point. So, the elastic-plastic rules in 5.3.3 capture this aspect by limiting the actual calculated plastic strain to the so-called limiting plastic strain that captures the transition from ductile-to-brittle behaviour.
2a) One interesting aspect of this behaviour is that if you reverse the sign of the triaxiality (and make it compressive instead of tensile), the maximum multi-axial strain can exceed (and in some cases vastly exceed) the uniaxial strain limit. Of course, this is phenomenon that occurs curing most metal-forming activities such as deep-drawing and wire-drawing. Metal forming textbooks will have an identical strain limit equation to what is in 5.3.3 - but with the expectation that the triaxiality will be compressive, leading to greater forming capability.
So, this phenomenon is part of continuum. In a manner of speaking, it is an extension of Protection Against Plastic Collapse, but it is more than that.
This failure mode needs tensile triaxiality to occur. In general pressure vessels and structures, with thin walls, the stress state is at best biaxial, with the third direction principal stress being between zero and negative the internal pressure.
If you wish to bring fracture mechanics into the picture, remember that in fracture mechanics, the stress direction of interest is normal to the crack face. Why? Because at the crack tip, the material is behaving in a brittle manner - mostly due to the triaxial stress state immediately ahead of the crack tip. So, the failure criteria is related to a more brittle material than a ductile material.
One final though - you know when you perform a uniaxial tensile test of a ductile material? You get some amount of necking with a cup-cone failure, but the center of the specimen has a brittle failure surface? Local Failure. With the necking, subsurface you get a triaxial stress state, which switches the failure mode to brittle. Think about that the next time you witness a tensile test...
Happy to discuss further.