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Remedies for Non-performance:

Perspectives from CISG, UNIDROIT Principles & PECL

Chengwei, Liu [*]
September 2003

[...]

PART IV. DAMAGES

CHAPTER 13. GENERAL MEASURE OF DAMAGES

13.1 Right to Damages
13.2 Full Compensation
13.3 Recoverable Losses
13.4 Compensation of Non-pecuniary Loss
13.5 Computation of Losses and Gains

      Damages is perhaps the most important relief available to an aggrieved party in the sense that it is a remedy almost invariably pursued either in and of itself or in conjunction with other remedies.[1] According to the generally held view, the object of damages is to place the party to whom they are awarded in the same pecuniary position that they would have been in if the contract had been performed in the manner provided for by the parties at the time of its conclusion.[2]

13.1 RIGHT TO DAMAGES

The right to damages exists in the event of failure to perform any of the obligations which arise from the contract. Thus it is not necessary to draw a distinction between principal and accessory obligations.[3] As to be demonstrated, the aggrieved party is generally entitled to recover damages "whenever it suffers loss from the other party's unjustified failure to perform".[4]

Under the CISG, Art. 45/61 provides that if the seller/buyer fails to perform any of his obligations under the contract or the Convention, the other party may "claim damages as provided in articles 74 to 77" (Art. 45(1)(b)/61(1)(b)). Furthermore, the entitled party "is not deprived of any right he may have to claim damages by exercising his right to other remedies" (Art. 45(2)/61(2)). It is confirmed in the two Principles. Art. 7.4.1 UPICC establishes the principle of a general right to damages in case of non-performance as: "Any non-performance gives the aggrieved party a right to damages either exclusively or in conjunction with any other remedies except where the non-performance is excused under these Principles." Art. 9:501(1) PECL reads similarly: "The aggrieved party is entitled to damages for loss caused by the other party's non-performance which is not excused under Article 8:108."

The right to damages, "like other remedies, arises from the sole fact of non-performance. It is enough for the aggrieved party simply to prove the non-performance, i.e. that it has not received what it was promised. It is in particular not necessary to prove in addition that the non-performance was due to the fault of the non-performing party. The degree of difficulty in proving the non-performance will depend upon the content of the obligation and in particular on whether the obligation is one of best efforts or one to achieve a specific result."[5] In other words: "Where a party's obligation is to produce a given result, its failure to do so entitles the aggrieved party to damages whether or not there has been fault by the non-performing party, except where performance is excused [...]. Where a party's obligation is not to produce a result but merely to use reasonable care and skill it is liable only if it has failed to fulfill its obligation, that is to say if it has not exercised the care and skill it has promised. In the absence of a clause specifying the required degree of care and skill, this is equivalent to the commission of a fault."[6]

In short, damages can be claimed no matter whether the breach of contract has been culpably committed intentionally or negligently or in any other way. The mere fact of a breach of contract is sufficient.[7] To submit such claims, "the aggrieved party may request damages either as an exclusive remedy (for example damages for delay in the case of late performance or for defective performance accepted by the aggrieved party; damages in the event of impossibility of performance for which the non-performing party is liable), or in conjunction with other remedies. Thus, in the case of termination of the contract, damages may be requested to compensate the loss arising from such termination, or again, in the case of specific performance, to compensate for the delay with which the aggrieved party receives performance and for any expenses which might have been incurred. Damages may also be accompanied by other remedies (cure, publication in newspapers of, for example, an admission of error, etc.)."[8]

13.2 FULL COMPENSATION

It is said that the right to damages is simply a direct deduction from the principle pacta sunt servanda, since its mainly effect is to substitute a pecuniary obligation for the obligation which was promised but not performed. It is therefore natural that the creditor should thereby be given full compensation. This compensation includes the loss suffered (damnum emergens), for example the expenses incurred in performing the contract, and the profit lost (lucrum cessans), for example the net profit which the contract would have produced. The award of compensation for the lost profit or the loss of a possible benefit has been frequently allowed by international arbitral tribunals.[9] This principle of full compensation is also reflected in the three instruments.

Under the CISG, Art. 74 provides a general rule which is applied when a party under Art. 45/61 is entitled to claim damages, and provides that the injured party may recover as damages "a sum equal to the loss, including loss of profit, suffered [...] as a consequence of the breach". The specific reference to "loss of profit" is necessary because in some legal systems the concept of "loss" standing alone does not include loss of profit.[10] Since Art. 74 is applicable to claims for damages by both the buyer and the seller and these claims might arise out of a wide range of situations, including claims for damages ancillary to a request that the party in breach perform the contract or to a declaration of avoidance of the contract, no specific rules have been set forth in Art. 74 describing the appropriate method of determining "the loss ... suffered ... as a consequence of the breach". The court or arbitral tribunal must calculate that loss in the manner which is best suited to the circumstances.[11]

The principle of full compensation is expressly stipulated under the very heading of "Full Compensation" in Art. 7.4.2(1) UPICC: "The aggrieved party is entitled to full compensation for harm sustained as a result of the non-performance. [...][12] In this respect, Art. 9:502 PECL states that: "The general measure of damages is such sum as will put the aggrieved party as nearly as possible into the position in which it would have been if the contract had been duly performed. [...]" This Article "combines the widely accepted 'expectation interest' basis of damages and the traditional rule of 'damnum emergens' and 'lucrum cessans' of Roman law, namely that the aggrieved party is entitled to compensation of such amount as will give it the value of the defeated contractual expectation. In a contract for the sale of goods or supply of services this is usually measured by the difference between the contract price and the market or current price but where the aggrieved party has made a cover transaction [...] it can elect to claim the difference between the contract price and the cover price. The sums recoverable as general damages embrace both expenditure incurred and gains not made. Damages under this Article are not intended to provide restitution (i.e. restoration of the parties of the status quo ante by mutual surrender of benefits received); [...]."[13]

The principle of full compensation under the three texts "makes it clear that the basic philosophy of the action for damages is to place the injured party in the same economic position he would have been in if the contract had been performed".[14] However, damages may be excused as in the case of force majeure or of an exemption clause. Hardship does not in principle give rise to a right to damages.[15] In other words, the aggrieved party may not recover damages for loss not caused by the failure to perform. However, not every intervening event, even if unforeseeable, which exacerbates the loss falls within this principle. The question in each case is whether that event would have had an impact on the contract if the failure in performance had not occurred. Only if this question is answered in the affirmative will the event in question be treated as breaking the chain of causation.[16]

In short, the general measure of damages is the principle of full compensation, namely that the creditor is entitled to be put into the same position as he would have been had the debtor complied with the terms of his contract.[17] In application of the principle of full compensation regard is to be had to any changes in the harm, including its expression in monetary terms, which may occur between the time of the non-performance and that of the judgment. The rule however is not without exceptions: for example, if the aggrieved party has itself already made good the harm at its own expense, the damages awarded will correspond to the amount of the sums disbursed.[18]

13.3 RECOVERABLE LOSSES

It is recalled that Art. 74 provides for compensation for "loss, including loss of profit, suffered as a consequence of the breach." Following the logic of this provision, it can be concluded that loss should be divided into two main categories: actual or effective loss and loss of profit.[19]

It is said that CISG Art. 74 "seeks to give the injured party the 'benefit of the bargain', as measured by expectation interests as well as reliance expenditures".[20] Following this approach, a measure protecting "expectation interest" has been said to accord directly with the underlying morality of promise keeping. A party's expectation interest will generally represent the actual worth of the contract to that party. And perfect expectation interest will leave an injured party indifferent between performance and nonperformance. However, the expectation interest is not the only interest that may be protected by an award of damages. Sometimes, so-called "reliance interest" is protected as well, the idea behind which is that if the contract has not been duly performed, the aggrieved party may seek to recover those expenses which he incurred having acted in reliance on the contract, as these expenses would otherwise be wasted. "This occurs when the plaintiff incurs expense in performing the contract, or perhaps even in preparing for its performance, in reliance on the defendant also performing his part of the bargain."[21] The core of the protection of reliance interest is to put the aggrieved party into the situation in which he would have been had the contract never been performed. It is the other side of a coin.

In specifying the harm for which damages are recoverable, UPICC Art. 7.4.2(1), which reads in part: "Such harm includes both any loss which it suffered and any gain of which it was deprived", following the rule laid down in Art. 74 CISG, states that the aggrieved party is entitled to compensation in respect not only of loss which it has suffered, but also of any gain of which it has been deprived as a consequence of the non-performance. The notion of loss suffered must be understood in a wide sense. It may cover a reduction in the aggrieved party's assets or an increase in its liabilities which occurs when an obligee, not having been paid by its obligor, must borrow money to meet its commitments. The loss of profit or, as it is sometimes called, consequential loss, is the benefit which would normally have accrued to the aggrieved party if the contract had been properly performed. The benefit will often be uncertain so that it will frequently take the form of the loss of a chance.[22] Similarly, 9:502 PECL provides in part that: "Such damages cover the loss which the aggrieved party has suffered and the gain of which it has been deprived." Thus, in addition to its primary claim for loss of bargain (that is, the loss which any aggrieved party would be likely to suffer from the non-performance) the aggrieved party can recover for loss resulting from its particular circumstances, so far as foreseeable (see Chapter 14). In Anglo-American usage such loss is sometimes termed "consequential loss".[23]

Furthermore, the loss for which damages are recoverable under PECL clearly includes "future loss which is reasonably likely to occur" (Art. 9:501(2)(b)), "that is, loss expected to be incurred after the time damages are assessed. This requires the court to evaluate two uncertainties, namely the likelihood that future loss will occur and its amount. As in the case of accrued loss before judgment (see Article 9:502) this covers both prospective expenditure which would have been avoided but for the breach and gains which the aggrieved party could reasonably have been expected to make if the breach had not occurred. Future loss often takes the form of the loss of a chance."[24] It is further noted: "All the legal systems will allow damages for loss which will occur after the day damages are assessed provided the loss is not too remote, [...]. Such loss may follow from the death of a breadwinner (spouse or parent) or personal disablement, where recoverable as contract damages, and from loss of future profit. See for instance CISG art. 74 [...]"[25] In addition, it is said that the issue of future damages is fully dealt with in its Art. 7.4.3 UPICC under the heading "Certainty of Harm" (see Chapter 14).

In short, besides a broad division, none of the three instruments defines what concrete types of loss can be compensated. "It seems that the principle of full compensation for harm, in the light of the particular contract and circumstances, should be the basis for determining the loss. This principle, in turn, will lead us to the conclusion that all kinds of loss, suffered by the party and caused by the breach, are recoverable."[26] However, whether non-pecuniary loss can be compensated seems to be controversial and will be discussed in the following section.

13.4 COMPENSATION OF NON-PECUNIARY LOSS

As discussed above, it is the entire loss, including loss of profit, suffered as a result of the breach of contract, which has to be compensated. Art. 74 CISG is, however, not applied to claims for damages in the case of the death or the bodily injury of a person caused by the goods, irrespective of whether or not the contracting party himself or a third person is involved. Art. 5 CISG excludes the claim for such damages from the scope of the Convention. The CISG only knows of compensation in money.

However, a rule governing such non-pecuniary loss might find application, in international commerce, in regard to contracts concluded by artists, outstanding sportsmen or women and consultants engaged by a company or by an organization.[27] Therefore, recoverable loss under both UPICC and PECL, whose sphere of application is each broader than the CISG and not limited to sales of goods, is not confined to pecuniary loss but may cover non-pecuniary loss, for example, pain and suffering, inconvenience and mental distress resulting from the failure to perform. Art. 7.4.2(2) UPICC expressly provides for compensation also of non-pecuniary harm and states: "Such harm may be non-pecuniary and includes, for instance, physical suffering or emotional distress." Art. 9:501(2)(a) PECL also states that the loss for which damages are recoverable under PECL includes "non-pecuniary loss". Conceptually, non-pecuniary loss can be defined as loss, flowing from an injury or damage to non-material values, which "are such values that do not have 'economic content' and are inseparable from the personality of a bearer of these values."[28] Non-pecuniary loss may be pain and inconvenience following from physical harm or from disappointment or vexation, and may be due to attacks on a person's personality, reputation or honour or to the death of a spouse or other closely related person.[29] The compensation of non-material harm may assume different forms and it is for the court to decide which of them, whether taken alone or together, best assures full compensation. The court may not only award damages but also order other forms of redress such as the publication of a notice in newspapers designated by it (e.g. in case of breach of a clause prohibiting competition or the reopening of a business, defamation etc.).[30]

However, one should note that such a radical difference between the damages provisions in the CISG and those in the two Principles, namely in respect of non-pecuniary damages or damages resulting from personal injury or death, "does not so much reflect a difference in the basic approach between the CISG and UNIDROIT Principles [as well as European Principles] as the fact that the drafters of the CISG wished to remove the complex area of products liability from the sphere of the CISG. The fact that such a provision is included in the UNIDROIT Principles [as well as European Principles] provides good grounds for arguing that the provisions of article 5 CISG should be restrictively interpreted and only the liability for personal injury or death should be excluded, but not other personal damages such as damage to reputation."[31]

It is submitted that that there may be at least two kinds of situations in which this type of loss may be compensated under the CISG. The first situation is the one where the purpose of the transaction is entirely non-material, and the parties are aware of such a purpose. Accordingly, the loss, caused by the breach, which totally or substantially undermines the whole (non-material) purpose of the transaction, should be recoverable. However, in a context of international commerce, the situations of this kind seem to be quite non-typical. The second situation is where an injured party's business reputation was negatively affected as a result of the breach. In commerce in general and in international sales, in particular, business reputation plays an important role. It can affect and sometimes pre-determine the state of affairs of a subject of commercial activity. Thus, it is suggested that, at least in theory, loss of reputation in itself should be recoverable under Art. 74.[32]

13.5 COMPUTATION OF LOSSES AND GAINS

Despite the principle of full compensation for harm will lead us to the conclusion that all kinds of loss, suffered by the party and caused by the breach, are recoverable, it seems to be universally accepted that loss should be offset by the gains which the aggrieved party has made due to the non-performance.[33] It is submitted that the second consequence of the principle that damages are compensatory is that an award of damages should not enrich the plaintiff: he cannot recover more than his loss.[34]

In any event, the aggrieved party must not be enriched by damages for non-performance. It is for this reason that p Art. 7.4.2(1) UPICC prescribes pertinently that account must be taken of "any gain to the aggrieved party resulting from its avoidance of cost or harm", whether that be in the form of expenses which it has not incurred (e.g. it does not have to pay the cost of a hotel room for an artist who fails to appear), or of a loss which it has avoided (e.g. in the event of non-performance of what would have been a losing bargain for it).[35] To the same effect, the Official Comment to the PECL Art. 9:502 clearly states: "The aggrieved party must bring into account in reduction of damages any compensating gains which offset its loss; only the balance, the net loss, is recoverable. Similarly, in computing gains of which the aggrieved party has been deprived, the cost it would have incurred in making those gains is a compensating saving which must be deducted to produce a net gain. Compensating gains typically arise as the result of a cover transaction concluded by the aggrieved party. But it is for the non-performing party to show that the transaction generating the gains was indeed a substitute transaction, as opposed to a transaction concluded independently of the default. A compensating saving occurs where the future performance from which the aggrieved party has been discharged as the result of the non-performance would have involved the aggrieved party in expenditure."[36]

In other words, the party entitled to damages does not suffer a "loss" to the extent that the breach of contract also confers advantages on him which absorb the detriment suffered. This approach, common to most legal systems where it is said that damages should compensate the loss of the aggrieved party -- neither more nor less, focuses on how to make the injured party whole, seeking to encourage the making of contracts by assuring the injured party the value of performance and by eliminating the prospect of penalties for non-performance. In short, the non-performance must be a source neither of gain nor of loss for the aggrieved party.[37]

Finally, it is to be noted that despite of the full compensation doctrine, each of the three instruments "does not provide for nominal damages for a breach which has caused the aggrieved party no loss."[38] It is a common feature that damages are awarded only if and to the extent the aggrieved party has suffered a loss as a consequence of the non-performance of the contract. No action for damages lies where the claimant fails to prove any loss resulting to him from the breach of contract.[39]

Go to table of contents to full text of Remedies for Non-performance" Perspecives from CISG, UNIDROIT Principles & PECL.


FOOTNOTES: Chapter 13

* Chengwei, Liu. LL.M. of Law School of Renmin University of China, P.O. Box 9-01 No. 1 (International Law), Law School of Renmin University of China, 59 Zhongguancun Street, Beijing 100872, China. E-mail: Genes@263.net.

1. See editorial remarks by Albert H. Kritzer on CISG Art. 74. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp74.html>.

2. See Saphire Award, ILR (1967); p. 185. Available online at <http://tldb.uni-koeln.de/TLDB.html>; TLDB Document ID: 261600.

3. See Comment 1 on Art. 7.4.1 UPICC. However, one should note that some of the acts described to be obligations under the CISG are nothing but mere incumbencies whose non-performance does not entail the right to claim damages but results in a loss of rights (like the obligation to examine the goods and the buyer's obligation to give notice under Arts. 38 and 39.)

4. See Comment and Notes to the PECL: Art. 9:501. Comment A. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp74.html>.

5. Supra. note 3.

6. Supra. note 4, Comment B.

7. See Fritz Enderlein, Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods, Oceana Publication (1992); p. 298. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/enderlein.html>. The right to damages may arise not only in the context of non-performance of the contract, but also during the pre-contractual period. See, for instance, under the UNIDROIT Principles Art. 2.15 in case of negotiations in bad faith, Art. 2.16 in the event of breach of the duty of confidentiality, or Art. 3.18 in the case of mistake, fraud, threat or gross disparity. (See Comment 3 on Art. 7.4.1 UPICC) However, theses issues don't fall within my discussion in this PART.

8. See Comment 2 on Art. 7.4.1 UPICC.

9. Supra. note 2.

10. See Secretariat Commentary on Art. 70 of the 1978 Draft [draft counterpart of CISG Art. 74], Comment 3. Available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-74.html>.

11. Ibid., Comment 4. The Secretariat Commentary goes on to discuss two common situations which might arise under Art. 74 and suggests means of calculating "the loss ... suffered ... as a consequence of the breach" as: Where the breach by the buyer occurs before the seller has manufactured or procured the goods, article 70 [draft counterpart of CISG article 74] would permit the seller to recover the profit which he would have made on the contract plus any expenses which he had incurred in the performance of the contract. The profit lost because of the buyer's breach includes any contribution to overhead which would have resulted from the performance of the contract. (Comment 5) Where the seller delivers and the buyer retains defective goods [If the delivery of the defective goods constituted a fundamental breach of contract, the buyer could avoid the contract. In such a case he would measure his damages under Art. 75 or 76 to the extent that those articles were applicable.], the loss suffered by the buyer might be measured in a number of different ways. If the buyer is able to cure the defect, his loss would often equal the cost of the repairs. If the goods delivered were machine tools, the buyer's loss might also include the loss resulting from lowered production during the period the tools could not be used. (Commentary 6) If the goods delivered had a recognized value which fluctuated, the loss to the buyer would be equal to the difference between the value of the goods as they exist and the value the goods would have had if they had been as stipulated in the contract [Art. 74 gives no indication of the time and place at which "the loss" to the injured party should be measured. Presumably it should be at the place the seller delivered the goods and at an appropriate point of time, such as the moment the goods were delivered, the moment the buyer learned of the non-conformity of the goods or the moment that it became clear that the non-conformity would not be remedied by the seller under Art. 37, 46, 47 or 48, as the case may be.]. Since this formula is intended to restore him to the economic position he would have been in if the contract had been performed properly, the contract price of the goods is not an element in the calculation of the damages. To the amount as calculated above there may be additional damages, such as those arising out of additional expenses incurred as a result of the breach. (Commentary 7)

12. See Comment 1 on Art. 7.4.2 UPICC.

13. See Comment and Notes to the PECL: Art. 9:502. Comment A. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp74.html>.

14. Supra. note 10.

15. Supra. note 3.

16. Supra. note 4, Comment D.

17. See P.D.V. Marsh, Comparative Contract Law: England, France, Germany, Gower Publishing (1994); p. 313.

18. See Comment 4 on Art. 7.4.2 UPICC.

19. See Djakhongir Saidov in "Methods of Limiting Damages under the Vienna Convention on the International Sale of Goods". Available online at <http://www.cisg.law.pace.edu/cisg/biblio/saidov.html>.

20. See Farnsworth in "Damages and Specific Relief": 27 Am. J. Comp. L. (1979); p. 249. (Cf. Jeffrey S. Sutton in "Measuring Damages Under the United Nations Convention on the International Sale of Goods"; 50 Ohio State Law Journal (1989); n. 61. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/sutton.html>.)

21. Supra. note 17.

22. See Comment 2 on Art. 7.4.2 UPICC.

23. Supra. note 13, Comment B.

24. Supra. note 4, Comment F.

25. Supra. note 4, Note 5.

26. Supra. note 19.

27. See Comment 5 on Art. 7.4.2 UPICC.

28. Supra. note 19.

29. Supra. note 4, Note 4.

30. Supra. note 27.

31. See Sieg Eiselen in "Remarks on the Manner in which the UNIDROIT Principles of International Commercial Contracts May Be Used to Interpret or Supplement Article 74 of the CISG" (2002). Available online at <http://www.cisg.law.pace.edu/cisg/principles/uni74.html>. Eiselen further states that the provisions of Art. 74 CISG are reflected in Arts. 7.4.1 and 7.4.2 of the UNIDROIT Principles. In Art. 7.4.2 of the UNIDROIT Principles the emphasis is on full compensation for harm sustained as a result of breach. The wording "harm sustained" in the UNIDROIT Principles is probably wider than the words "a sum equal to the loss suffered" in the CISG reflecting the difference in approach to personal injuries discussed above. In case of doubt the interpretation of Art. 74 CISG should also lean toward full compensation for harm as far as harm has not been excluded from the scope of the CISG by Art. 5.

32. Supa note 19. However, hardly can such losses be proved, let alone the establishment of foreseeability, causal link and certainty (if applicable). In practice, the damages for loss of (injury to) reputation in itself will hardly be recoverable because of the difficulty of proof and meeting the requirements of Art. 74 CISG.

33. Supra. note 13, Note 4.

34. See Treitel, G.H. in "Remedies for Breach of Contract": David/von Mehren eds., International Encyclopedia of Comparative Law, Bd. VII, Tübingen (1976); p. 25. TLDB Document ID: 117200.

35. See Comment 3 on Art. 7.4.2 UPICC.

36. Supra. note 13, Comment C.

37. Supra. note 12.

38. Supra. note 4. However, some legal systems, e.g., Anglo-American law, sometimes award nominal damages -- a symbolic compensation even if the aggrieved party has not suffered any loss.

39. Art. 432 of Contract Code Drawn upon on behalf of the English Law Commission. TLDB Document ID: 450200.


CHAPTER 14. LIMITS TO CLAIMS FOR DAMAGES

14.1 General Considerations
14.2 Foreseeability of Loss
        14.2.1 In General
        14.2.2 Test for Foreseeability
        14.2.3 Party Concerned and Reference Point
        14.2.4 Evaluation of Foreseeability
        14.2.5 Content of Foreseeability
        14.2.6 Concluding Remarks
14.3 Certainty of Harm
14.4 Contribution to Harm
        14.4.1 In General
        14.4.2 Ways of Contributing to the Harm
        14.4.3 Remedies Affected by the Contribution
    14.4.3.1 Remedies available upon non-performance caused solely by the contribution
    14.4.3.2 Damages proportionately reduced due to partial contribution
14.5 Duty to Mitigate
        14.5.1 In General
        14.5.2 Reasonable Measures Taken
        14.5.3 Effects of Failure to Mitigate

     While it is encouraging to see broader protection for the injured party, limiting the liability of the breaching party may also be desirable under some circumstances. It is not always wise to make the defaulting promisor pay for all the damage which follows as a consequence of his breach. The principle, which is common to many legal systems, is that of limiting the contractual liability of the party in breach.[1]

14.1 GENERAL CONSIDERATIONS

Based on the idea that the recovery of damages cannot be unlimited, the purpose of using the methods of limiting damages is to restrict the liability in damages. This purpose makes the issue of limiting damages an integral part of the general measure of damages. In this respect, it is to be noted that the respective techniques limiting damages vary depending on the principles established in particular legal systems.

Generally speaking, the limits of recovery are in part derived from the conditions of the non-performing party and in part from circumstances of the aggrieved party. On the one hand, most legal systems often give special consideration to the non-performing party and limit damages out of consideration for it. They do so by a great variety of techniques such as requiring that the non-performing party was at fault; or that he foresaw or could have foreseen the loss; or that he "adequately" caused the loss.[2] On the other hand, with regard to those limitations of recovery which are derived from the conditions of the aggrieved party, two types of loss clearly stand out: the first is loss suffered by the aggrieved party which results from his own unreasonable behavior or his failure to take reasonable steps to mitigate his loss; and the second ground for limiting recovery is the presence of savings or gains which result from the breach of contract (see Chapter 13).

These two heads of limiting the aggrieved party's loss and therefore of his compensation seem to be very widely recognized. For example, the CISG has adopted the Anglo-American foreseeability test (Art. 74). By contrast, the CMEA General Conditions for Deliveries combine the requirements of a causal connection and of fault on the part of the non-performing party ( 67 D(1)(c) and (d), (2) and (3)). And the aggrieved party's burden of mitigating the loss is also expressly spelt out in the uniform laws. However, in view of the great diversity of approaches it is not yet possible to explain and compare all of these various approaches towards the limiting of damages. For this reason, the author will focus below on those well-known methods such as foreseeability, certainty, mitigation and contribution as adopted under the three instruments.

14.2 FORESEEABILITY OF LOSS

14.2.1 In General

One of the methods of limiting damages, which has received an extensive application in various legal systems and international acts, is the principle of foreseeability, or so-called contemplation principle. This principle has a long history. It was first established in Roman law. Much later, it was established in the Code Napoleon and, consequently, adopted by a number of legal systems. This rule has been adopted by the Common law as well. It was established in a famous case Hadley v. Baxendale and further restated in Victoria Laundry v. Newman Industries.[3]

Considering numerous versions of foreseeability in particular legal systems,[4] it is decided in this section to focus on such a test as similarly established under the three studied instruments. In this respect, the second sentence of Art. 74 CISG closely resembles the common law foreseeability requirement: "Damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract." It is also adopted in the two Principles. Art. 7.4.4 UPICC prescribes that: "The non-performing party is liable only for harm which it foresaw or could reasonably have foreseen at the time of the conclusion of the contract as being likely to result from its non-performance." Art. 9:503 PECL stipulates that: "The non-performing party is liable only for loss which it foresaw or could reasonably have foreseen at the time of conclusion of the contract as a likely result of its non-performance, unless the non-performance was intentional or grossly negligent."

Clearly, these provisions cited above resemble in substance. I, therefore, will focus on the approach taken on by the CISG, with a comparison with the other instruments where the approach developed or worded differently. According to the second sentence of Art. 74 CISG, "the only damages that must be compensated are those which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract. [...] The underlying idea is that the parties, at the conclusion of the contract, should be able to calculate the risks and potential liability they assume by their agreement."[5] This rule encourages the injured party to disclose any special circumstances and is therefore consistent with the cooperation and communication goals. It is also consistent with the purpose of not penalizing a breaching party who did not know of special circumstances and could not take special precautions.[6]

Texually speaking, in considering ways to limit the liability of the breaching party under Art. 74 CISG, there is "seven clauses" referred to as "bare bones" which a court must analyze. These clauses are: "Such damages may not exceed" the loss which "the party in breach" "foresaw or ought to have foreseen" "at the time of the conclusion of the contract" in light of the "facts and matters of which he then knew or ought to have known" "as a possible" "consequence of the breach of contract".[7]And in the following paragraphs the author will selectively lucubrate into some of these "bare bones".

14.2.2 Test for Foreseeability

It is clear that the second sentence of Art. 74 CISG provides for both subjective and objective standards with respect to foreseeability by using the wording "foresaw or ought to have foreseen". What is meant here is to foresee subjectively, but the Convention does not stop at that. Insofar as damage is a completely normal consequence of a breach of contract, it should have been foreseen.[8]

In order to determine the foreseeability, it will be sufficient to prove either that the party actually foresaw the loss, or was objectively in a position to foresee it. Therefore, it is not necessary to prove that the party in breach actually foresaw the loss. The proof of an objective element will be sufficient to make the party liable for loss.[9] However, such liability may be restricted on the basis of a reasonable allocation of risks under the contract. In particular, it is not quite exact to state that the subjective foreseeability does not matter. Subjective foreseeability plays a role when the resulting loss is above what would have been regarded as the normal measure by any reasonable person, but actually was foreseen by the party in breach.[10] On the other hand, "it may explicitly or implicitly follow from the terms of the contract that certain losses should not be covered by the party's liability, even though they were foreseen or objectively foreseeable."[11]

In short, the breaching party would be liable when proved either that the party actually foresaw the loss, or was objectively in a position to foresee it, in consideration of particular circumstances. To clarify this double test, there are more details needed discussing in the following paragraphs.

14.2.3 Party Concerned and Reference Point

The first question is: who is required to foresee or to be in a position to foresee? It is said that "foreseeability, as understood in Article 74, depends on the knowledge of facts and matters which enable the party concerned to foresee the results of the breach".[12]

In this regard, it's only "the party in breach" whose knowledge matters. This is clearly shown by the wording in Art. 74 "the loss which the party in breach foresaw or ought to have foreseen". This position is somewhat different in English law. In particular, in Hadley v. Baxendale, the requirement was that the loss be "in the contemplation of both parties".[13] What's the idea underlying this formula of Art. 74 in stating that it is only "the party in breach" who is required to foresee or to be in a position to foresee? It is said that, "[t]he C.I.S.G. article, in limiting reference to the party in breach, surely does not envision delivering a windfall to the plaintiff, because the plaintiff recovers something not foreseen. Rather, this language reflects the view that the focus should be on the party who will have to answer for the amount of the loss."[14]

Then the second issue arises: What's the relevant time for evaluation of foreseeability? Adopting the same position as that set out in the Hadley rule or English law (where the relevant time for evaluation of foreseeability is generally the time of making the contract), Art. 74 CISG directly refers foreseeability to "the time of the conclusion of the contract" for determining what is foreseeable.

It follows: "It is not sufficient that the party in breach could at the time of the delivery of the defective goods or at the time of performance of the non-delivered goods foresee the damage to be caused by the breach of contract. The party in breach rather should have been able to foresee the damage at the time of the conclusion of the contract. He should at the time of the conclusion of the contract be in a position to calculate his risk".[15] Generally, the "at the time" language in Art. 74 seems to be "problem-free", this rule is well settled and has proved remarkably resistant to change.[16] The purpose here is to emphasize the important role played by the time precision in assessing foreseeability. The fact that negotiating leading to the conclusion of the contract may last a certain period of time makes it clear that precision in relation to the time becomes very important. It is therefore to be noted that, careful attention should be paid to the requirements of some legal systems governing the conclusion of contract.

In any event, the moment of the conclusion of the contract is the decisive time in determination of the party's foreseeability. "No possible foreseeability, which may take place after this moment, should have any legal consequences."[17] It is only within such limits of the particular period of time, i.e., the time of the conclusion of the contract, that other important elements of foreseeability will be examined.

14.2.4 Evaluation of Foreseeability

Generally, the terms of the contract, together with knowledge of the party in breach, are among the first important factors in evaluation of foreseeability. Moreover, Art. 6 of the CISG clearly shows that in case there are hesitations as to the sequence or priority of application of these elements, precedence should be given to the "express or implied" intentions of the parties with respect to the terms of the contract. However, the party's actual foresight and the ability to foresee may not always be explicitly reflected in the contract. "It would be more correct to say that foreseeability is partly reflected by the terms of the contract. Besides the contract terms, there are other elements, which are essential in evaluating foreseeability: knowledge and trade usage. These two elements may or may not be explicitly reflected in the contract."[18]

As mentioned above, the foreseeability was established at common law in the famous case Hadley v. Baxendale and further restated in Victoria Laundry v. Newman Industries. In this regard, it was once thought that Hadley v. Baxendale (1854) should be understood as establishing two rules, namely that "the damages should be such as may fairly and reasonably be considered as arising either: a) naturally, i.e. according to the usual course of things from such breach of contract itself; or b) as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach." This test was reformulated in Victoria Laundry v. Newman in what has been referred to as a classic statement of the law: The aggrieved party is only entitled to recover such part of loss actually resulting as was the time reasonably foreseeable as liable to result from the breach. What was at the time so foreseeable depends on the knowledge that the parties had at the time of the conclusion of the contract, or, "at all events", the party in breach had at that time. The two rules of Hadley v. Baxendale become one. There is the imputed knowledge which every reasonable person is taken to know in the ordinary course of things and the actual knowledge of special circumstances of which the contract-breaker was aware at the time of entering into contract.[19]

It follows that under English law, knowledge can be of two kinds: imputed knowledge (which in "the ordinary course of things" is possessed by any reasonable person (regardless of whether the party in breach actually possesses it or not) and actual knowledge (which means knowledge the party in breach actually has of some special circumstances, which lie beyond "the ordinary course of things"). In turn, the CISG does not directly establish the two parts of the Hadley rule, which subsequently gave way to the doctrine of two types of knowledge. Nonetheless, as to be furthered below, analogous subjective and objective standards have been established with respect to the party's knowledge: "the facts and matters of which he then knew or ought to have known". Therefore, such wording is likely to cover "the ordinary course of things" case as well as "the special circumstances" case.[20]

It is here recalled the manifestation of objective and subjective standards with respect to the foreseeability test. What are the standards with respect to the knowledge itself, which has been established as an essential element for evaluation of foreseeability? It suggests that a similar approach has been taken on when Art. 74 uses the wording "in the light of the facts and matters of which he then knew or ought to have known" to define the foreseeability formula. "This wording serves to objectify the foreseeability. What matters is not anymore the actual foreseeability, rather, it is the foreseeability which can be expected from a reasonable party in the same situation."[21]

Interpreting this wording may involve the consideration of several sources as regards the "knowledge" available to the breaching party at the time of the conclusion. From one source, based on a subjective standard: "The party in breach will also be considered as having known the facts and matters enabling him to foresee the possible consequences of the breach, and therefore, as having foreseen them, whenever the other party to the contract has drawn his attention to such possible consequences in due time. Should a party at the time of the conclusion of the contract consider that breach of contract by the other party would cause exceptionally heavy losses or losses of an unnatural nature, he may make this known to the other party with the result that if such damages are actually suffered they may be recovered."[22] Sutton also submits that, a party to a contract that may lead to unusually large losses may want to make these dangers known to the other contracting party in order to implicate the subjective prong of the Art. 74 foreseeability test. It is obvious that a party who fears suffering an extraordinary loss as a consequence of the breach of contract by the other party, should make this known to the latter at the conclusion of the contract so as to enable him to calculate the risk.[23]

However, it is not the only available source. The CISG does not stop at actual knowledge but establish the imputed one as well. This is the other source, from which the breaching party will have the knowledge that merchants in general have. The party in breach will be considered as knowing the facts and matters enabling him to foresee the consequences of the breach of contract if such knowledge generally flows from the experience of a merchant or, in other words, if such knowledge can in the given case be expected of him having regard to his experience as a merchant. "Generally, knowledge, in the light of an objective standard, should be generally imputed to the party in breach if it can be objectively considered that such knowledge is based on the experience of the party as a 'merchant'."[24] At that, the circumstances of a concrete case should be taken into account as well. In this respect, to what extent the party in breach is capable of taking the circumstances into consideration may depend on his position, especially which has been affected greatly by advances today in technology. "Modern business practices (and equipment), accounting methods, and the extensive communication of information make more knowledge available to both parties. This increased knowledge may make potential amounts of loss easier to compute. A potential breacher today will have available a great deal more information about what can happen concerning the contract and hence 'ought to know' a great many more facts than a potential breacher in the nineteenth century."[25]

It seems that in some cases, a trade usage can also serve as an additional factor for evaluation of foreseeability. A trade usage can be relevant for determining both subjective and objective standards with respect to foreseeability.[26] Where a trade usage is relevant in evaluation of foreseeability, the applicability of an objective or a subjective standard of foreseeability can be linked to the grounds provided for in Art. 9 CISG, which contains both subjective and objective grounds for applicability of a usage to the parties' legal relationships.[27]

In this regard, Saidov states as follows: "If a subjective ground is applicable, i.e. if the parties have specifically agreed to a particular trade usage, or established a practice between themselves, or knew of a usage, then such a usage or practice will be likely to determine the actual knowledge of a party in breach. The actual knowledge, in turn, can, on the one hand, establish the actual foresight. On the other hand, the fact that a party actually knew of something does not necessarily mean that he actually foresaw the consequences in question. The actual knowledge can as well lead to the establishment of an objective standard, i.e. that a party, having known of certain conditions, was in a position to foresee the consequences of the breach, but did not in fact foresee them. If an objective ground for applicability of a usage comes into play, then this ground is likely to impute the knowledge of the party in breach. Provided that a party did not actually possess the knowledge, the imputed knowledge will be more likely to lead to determination of an objective foreseeability ('ought to have foreseen'), rather than of an actual foresight. The reason for this conclusion is that it is highly unlikely that a party will actually foresee the consequences if he does not actually have necessary knowledge."[28]

In any event, "in deciding whether the party in breach can be considered as having known 'the facts and matters', a right balance has to be found in relying on available sources. This means that we will need to assess the proportion, in which each of the sources of information can be said to have contributed to the formation of the party's knowledge. However, ultimately, the specific circumstances of a particular case should be decisive."[29]

14.2.5 Content of Foreseeability

The foreseeability established under Art. 74 CISG, directly refers to the loss "as a possible consequence of the breach of contract". "The phrase 'as a possible consequence' appears in Article 74, while Hadley chose 'as a probable result'. [...] Thus the language of the C.I.S.G. ostensibly widens the area of liability imposed upon a breaching party. Hopefully, 'possible' will not cause in international sales cases the same speculation that 'probable' has caused in the British cases."[30]

This makes it clear that, the foreseeability does not refer to a certain sum of money equal to the loss, even though the wording of this rule may suggest it, but to the possibility of a loss as a consequence of the breach of contract as such and the extent of the possible loss.[31 ]It follows that foreseeability is a flexible concept falling within the wide discretion of the judge. What should have been foreseen in each case will often have to be judged retroactively by a court or an arbitral tribunal. Already in the jurisdiction in regard to ULIS, which in Art. 82 contained the same rule of foreseeability, the following cases became apparent: (a) the cost of a substitute transaction and the loss of resale profit are foreseeable; (b) missed uses of the goods to be delivered are also part of the generally foreseeable damage; (c) additional costs for transportation, storage and insurance are also foreseeable; and (d) even the loss of clients of the buyer because of the defect in the goods was characterized as foreseeable. Only the loss suffered from a decline in the currency which occurred as a consequence of the delay in payment was predominantly rejected as not foreseeable.[32]

And with regard to the crucial question on what concrete factors the party in breach had to foresee or ought to have foreseen to be liable for the loss, it is further summarized: "The first such factor is the possibility of the loss. This conclusion flows directly from Article 74, which provides that the loss must be foreseen as 'a possible consequence of the breach'. There is no doubt that the risk of loss is in direct connection with the type of a potential loss. Therefore, the second factor, which the party had to foresee or ought to have foreseen, is the type of the loss. It is further submitted that foreseeability should also relate to the possible extent of the loss (the third factor). The party in breach should not be held liable for the full extent of the loss, if he could not have reasonably foreseen or was not in the position to foresee that such extent would follow from the type of the loss which he foresaw or ought to have foreseen. The party should be liable only to the extent which he foresaw or ought to have foreseen as the possible extent of the loss. It is also to be noted that in evaluating the possible extent of the loss, the manner in which the loss was caused, or the events which led to the loss having acquired the extent in question, can often be decisive. Therefore, arguably, these aspects can be regarded as necessary factors that the party had to foresee or ought to have foreseen to be liable for the extent of the loss in question."[33]

On the other hand, it can be inferred from the wording "as a possible consequence of the breach of contract" that there is a requirement as to the presence of causal link between the breach and the loss. Although the concept of causation in different legal systems gave rise to the development of various theories of causation, the causal link, established in Art. 74, strongly overlaps the foreseeability rule. Thus, a loss may be considered to be caused by an event if the event is appropriate to bring it about and if a third person in the light of general experience and with knowledge of all the facts could have foreseen the possibility of loss. Foreseeability and causation are closely inter-related and hardly does it seem possible to rigidly separate them from each other. Indeed, foreseeability largely consists of an element of causation. Without an understanding of how events can affect each other and of "a degree of uniformity of sequence of events", it would be impossible to foresee anything whatsoever.

However, as criticized by some authors, such an inter-connection cannot serve as a basis to consider the two concepts as mutually exclusive. Nor is it correct to regard foreseeability as being capable, at least on a theoretical level, of fully replacing the potential effect of causation. Causation as a phenomenon exists on its own regardless of our knowledge of the world. It is an objective phenomenon. Therefore, it seems incorrect to bring an objective process, which exists independently of our perception of the world, entirely down to the way a person could foresee the potential causal processes. The foreseeability rule under the CISG includes both subjective and objective standards. The way a person had actually foreseen or been in the position to foresee the potential development of events, at the time of the conclusion of the contract, does not necessarily coincide with the way such a development has, in fact, taken place. Rather, these concepts should supplement and balance each other. The doctrines on foreseeability and causation could be applied in a rather consistent manner and Art. 74 is certainly flexible enough to accommodate an application of general principles.[34]

14.2.6 Concluding Remarks

Under the foreseeability formulae, restricting the extent of the liability of the non-performing party, as provided for in Art. 74 CISG, "the emphasis is on loss which was actually foreseen or which the party ought to have foreseen in the light of circumstances known to him or of which he should have known as a possible consequence of the breach."[35]

What was foreseeable is to be determined by reference to the time of the conclusion of the contract and to the non-performing party itself (including its servants or agents), and the test is what a normally diligent person could reasonably have foreseen as the consequences of non-performance in the ordinary course of things and the particular circumstances of the contract, such as the information supplied by the parties or their previous transactions. This limitation is related to the very nature of the contract: not all the benefits of which the aggrieved party is deprived fall within the scope of the contract and the non-performing party must not be saddled with compensation for harm which it could never have foreseen at the time of the conclusion of the contract and against the risk of which it could not have taken out insurance. Foreseeability relates to the nature or type of the harm but not to its extent unless the extent is such as to transform the harm into one of a different kind. In any event, foreseeability is a flexible concept which leaves a wide measure of discretion to the judge.[36]

Also, it must be noted that, in some legal systems, the limitation of damages by foreseeability as such is restricted when the breach of contract was committed intentionally. Although in general the non-performing party is liable only for loss which it foresaw or ought to have foreseen at the time of the contract, the last part of Art.9:503 PECL, which reads: "The non-performing party is liable only for loss which it foresaw or could reasonably have foreseen at the time of conclusion of the contract as a likely result of its non-performance, unless the non-performance was intentional or grossly negligent", lays down a special rule in cases of intentional failure in performance or gross negligence. In this case the damages for which the non-performing party is liable are not limited by the foreseeability rule and the full damage has to be compensated, even if unforeseeable.[37]

However, no such rule exists in the CISG.[38] The UNIDROIT Principles also stresses that the concept of foreseeability must be clarified since the solution contained therein does not correspond to certain national systems which allow compensation even for harm which is unforeseeable when the non-performance is due to willful misconduct or gross negligence. Unlike certain international conventions, particularly in the field of transport, the UNIDROIT Principles follows the CISG in not making provision for full compensation of harm, albeit unforeseeable, in the event of intentional non-performance. Since the present rule of UPICC Art. 7.4.4, which reads: "The non-performing party is liable only for harm which it foresaw or could reasonably have foreseen at the time of the conclusion of the contract as being likely to result from its non-performance", does not provide for such an exception, a narrow interpretation of the concept of foreseeability is called for.[39] This is also important for the restrictive interpretation of article 74 CISG in the light of the wide phrasing of Art. 74.[40]

14.3 CERTAINTY OF HARM

Another important principle, together with the foreseeability rule, may be assumed from Art. 74 CISG, i.e. the party is not liable for harm which has not occurred and which is not likely to occur, either. The requirement of foreseeability must be seen in conjunction with that of certainty of harm.[41] Such an interpretation is strengthened by the interpretation of Art. 7.4.3 UPICC: "It is submitted that article 7.4.3 of the UNIDROIT Principles may be helpful in interpreting article 74 CISG and to fill the apparent gap which exists. The UNIDROIT Principles clearly accept the principle that the defaulting party is liable for future damages and provide a practical, reasonable and equitable approach for the determination of such damages."[42] "UNIDROIT Principles article 7.4.3 complements CISG article 74 by emphasizing that the existence and extent of the harm to be compensated must be established with a reasonable degree of certainty."[43]

In this respect, Art. 7.4.3 UPICC reads: "(1) Compensation is due only for harm, including future harm, that is established with a reasonable degree of certainty. (2) Compensation may be due for the loss of a chance in proportion to the probability of its occurrence. (3) Where the amount of damages cannot be established with a sufficient degree of certainty, the assessment is at the discretion of the court." It appears that this Article establishes two principles, namely, (a) the defaulting party is liable; and (b) the calculation of the loss is in proportion to the probability of the occurrence of the chance.[44] This Article reaffirms the well-known requirement of certainty of harm, since it is not possible to require the non-performing party to compensate harm which may not have occurred or which may never occur. Para. (1) of Art. 7.4.3 explicitly permits the compensation also of future harm, i.e. harm which has not yet occurred, provided that it is sufficiently certain. Para. (2) in addition covers loss of a chance, obviously only in proportion to the probability of its occurrence. Certainty relates not only to the existence of the harm but also to its extent.[45]There may be harm whose existence cannot be disputed but which it is difficult to quantify. This will often be the case in respect of loss of a chance (there are not always "odds" as there are for a horse, for example a student preparing for a public examination) or of compensation for non-material harm (detriment to someone's reputation, pain and suffering, etc.). According to para. (3), where the amount of damages cannot be established with a sufficient degree of certainty then, rather than refuse any compensation or award nominal damages, the court is empowered to make an equitable quantification of the harm sustained.[46]

The view can be taken that certainty is a matter governed, but not expressly settled in the Convention. Certainty can be either treated as a procedural issue, "indirectly" governed by the CISG, or merely as a substantive rule governed but not expressly settled in the Convention. Recourse in this case, must be, first, had to one of the general principles on which the Convention is based. If no relevant general principle is found, the matter must be settled in accordance with the applicable rules of Private International Law. It is to be stated that the issue of certainty of damages is directly related to the problem of proof. In practice, the proof of the precise amount of damages may not always be possible. Therefore, the extent of compensation can be determined on the basis of a mere discretion of a judge or an arbitrator. Such a solution of the problem of certainty can, first of all, derive from a relevant provision of an applicable law. This result may follow from either of the two approaches, i.e., where the issue of certainty is regarded as being either outside the scope of the CISG or "governed, but not expressly settled" in it, as well as from an application of the UNIDROIT Principles. This treatment of certainty represents a workable solution, which is conducive to maintaining the CISG international character and contributing to uniformity in its application.[47]

In short, according to the certainty test established under Art. 7.4.3 UPICC, there are two approaches that a court may follow in calculating the harm: Where the amount of harm, including future harm, can be established with certainty, the court will award that amount. However, where it is certain that harm has resulted or will result, but where the amount cannot be established with sufficient certainty, the court has a discretion in assessing the amount.

14.4 CONTRIBUTION TO HARM

14.4.1 In General

The next method of limiting damages, provided for in some legal systems and international documents such as the CISG, is the contribution rule. However, it is submitted that except indirectly, the CISG does not deal with the issue of contributory conduct of the aggrieved party which adds to the loss of harm suffered.[48]

In this respect, Art. 80 CISG is of particular relevance, which under the general heading of "Exemptions" establishes a general principle concerning the issue of contributory negligence and prescribes that: "A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act or omission." This Article states the self-evident proposition that a party cannot rely on another party's failure to perform if the failure was induced by the first party's own conduct e.g., by supplying faulty specifications for the construction of a machine or vessel or instructing the seller to use the paint of a particular manufacturer which proves unsuitable for the purpose for which it is intended.[49]

In discussing the contribution rule under Art. 80 CISG, the rule of estoppel or venire contra factum proprium has to be mentioned. This principle is known in German and Swiss law by the maxim non concedit venire contra factum proprium and, in common law countries, as estoppel by representation. It is found in French law in the form of a principle of consistency and has also been recognized in arbitral case law.[50] There is a general principle of law, both international and municipal, i.e. estoppel, which "requires that the party claiming it has relied on a representation by another party with a resulting detrimental consequence to its own interests".[51] "[A] man shall not be allowed to blow hot and cold - to affirm at one time and to deny at another ... Such a principle has its basis in common sense and common justice, and whether it is called estoppel or by any other name, it is one which courts of law have in modern times most usefully adopted."[52] In a word, no one may set himself in contradiction to his own previous conduct.[53]The ICJ has found estoppel to be "numbered among the general principles of law accepted by international law as forming part of the law of nations, and obeying the rules of interpretation relating thereto".[54] Its content is obviously an expression of general principles, in particular that of good faith, respectively a concrete manifestation of it, the prohibition to contradict one's own behaviour (venire contra factum proprium).[55]

Applying the principle that a party cannot contradict itself to the detriment of another, Art. 80 CISG was added at the Vienna out of an abundance of caution as a new rule which doesn't appear in the 1978 Draft.[56] Although no match-up of Art. 80 CISG with the 1978 Draft exists, and therefore no its counterpart in the Secretariat Commentary exists, there are various sources helping interpret this article. The general principle established under Art. 80 CISG, restricting remedies where non-performance is partly due to the conduct of the aggrieved party, can also be found in both Art. 7.1.2 UPICC and Art. 8:101(3) PECL. Further, both the UPICC and the PECL deal with the application of this general principle respectively in Art. 7.4.7 and Art. 9:504. All of these sources will do much in my discussions below.

14.4.2 Ways of Contributing to the Harm

As for the ways of contributing to the harm, it follows from Art. 7.1.2 UPICC, which reads: "A party may not rely on the non-performance of the other party to the extent that such non-performance was caused by the first party's act or omission or by another event as to which the first party bears the risk", that the contribution of the aggrieved party to the harm may consist either in its own conduct or in an event as to which it bears the risk. Art. 7.1.2 UPICC can be regarded as providing two excuses for non-performance. Two distinct situations are contemplated. In the first, one party is unable to perform either wholly or in part because the other party has done something which makes performance in whole or in part impossible. Another possibility is that non-performance may result from an event the risk of which is expressly or impliedly allocated by the contract to the party alleging non-performance.[57]

The Official Comment on UPICC Art. 7.4.7 also makes it clear: "The contribution of the aggrieved party to the harm may consist either in its own conduct or in an event as to which it bears the risk. The conduct may take the form of an act (e.g. it gave a carrier a mistaken address) or an omission (e.g. it failed to give all the necessary instructions to the constructor of the defective machinery). Most frequently such acts or omissions will result in the aggrieved party failing to perform one or another of its own contractual obligations; they may however equally consist in tortious conduct or non-performance of another contract. The external events for which the aggrieved party bears the risk may, among others, be acts or omissions of persons for whom it is responsible such as its servants or agents."[58] However, when the contract is being made, a party is normally only fixed with the knowledge imputed to his employees or agents involved in making the contract. The employee or other person must have been someone who was, or who appeared to be, involved in the negotiation or performance of the contract. If a person not so related to the contract knows a relevant fact he may not be able to appreciate its relevance to the contract and thus might not report it. The burden of proving that the person for whom the contracting party is held responsible was not and did not reasonably appear to the other party to be involved in the making or performance of the contract rests on the first party.[59]

Interestingly, Art. 8:101(3) PECL seems to contain only the first situation discussed above when it stipulates that: "A party may not resort to any of the remedies set out in Chapter 9 to the extent that it's own act caused the other party's non-performance." Nonetheless, Art. 9:504 PECL contains an analogous rule, which can be used to fill the gap in Art. 8:101(3) PECL: "The non-performing party is not liable for loss suffered by the aggrieved party to the extent that the aggrieved party contributed to the non-performance or its effects." This Article embodies the principle that an aggrieved party should not recover damages to the extent that its loss is caused by its own unreasonable behaviour. It embraces two distinct situations. The first is where the aggrieved party's conduct was a partial cause of the non-performance; the second, where the aggrieved party, though not in any way responsible for the non-performance itself, exacerbated its loss-producing effects by its behaviour.[60] To the extent that the aggrieved party contributed to the non-performance by its own act or omission he cannot recover the resulting loss. This may be regarded as a particular application of the general rule set out in Art. 8:101 (3).[61]

In short, ways of contributing to harm embrace two distinct situations. The first is where the aggrieved party's conduct was a sole or partial cause of the non-performance; the second, where the aggrieved party, though not in any way responsible for the non-performance itself, exacerbated its loss-producing effects by its behavior, i.e. the non-performance is caused by an external event as to which the aggrieved party bears the risk.

14.4.3 Remedies Affected by the Contribution

The remedies available for non-performance depend upon whether the non-performance results from behaviour of the other party. The fact that the non-performance is caused by the creditor's conduct (act or omission) or the external events as to which it bears the risk, has an effect on the remedies open to the obligee. Generally, this effect may be total, that is to say that the creditor cannot exercise any remedy, or partial. The exact consequence of the creditor's behaviour will be examined with each remedy.[62]

14.4.3.1 Remedies available upon non-performance caused solely by the contribution

There is agreement among the legal systems that a non-performance which is due solely to the other party's wrongful prevention does not give the latter any remedy. These will mostly be breaches of contract on the part of the creditor. In most of the systems the party who has prevented performance will himself be the non-performing party against whom the remedies may be exercised.[63]

Enderlein & Maskow submit that: The party in breach can, therefore, not assert any claims because of a breach of contract. It not only has no right to claim damages, as in the event of grounds for exemption in the meaning of Art. 79, it has no right to performance nor to avoidance. When the debtor is hindered in performing in time by the party in breach, e.g. because of belated communication of instructions for dispatch, the seller cannot dispatch the goods, the party in breach will have to accept the late delivery without having the right to require any sanction. When the party in breach has caused the non-conform or defective delivery, e.g. sub-supply of material having non-apparent defects, he cannot require delivery of substitute goods or repair or reduction of the price, etc. The acts by the creditor which cause the breach of contract will generally represent themselves as breach of contract committed by the former so that the debtor being the creditor of those acts can assert the respective claims. He will have the right to claim damages only to the extent to which the party in breach cannot rely on impediments. Among the rest of the claims, which are retained in any case, the right to avoid the contract is of special relevance. In asserting that right, the fate of the blocked contract can be decided once and for all.[65]

Peter Schlechtriem confirms: "Article 80 releases a party from his obligations where the other party has impaired his performance. [...] In such cases, an obligor will generally be excused from liability on the basis of Article 79(1). But Article 80 reaches much further. Since Article 80 exempts all claims against the obligor, it gained importance when a proposal was rejected which would have extinguished the right to demand specific performance in a case where Article 79 exempts a party for liability for damages. If the buyer frustrated performance, such as by not providing drawings required for production or by not procuring an import permit, he can neither demand specific performance nor declare an avoidance. He also may not reduce the price for defects caused by mistakes in the drawings he provided. Of course, the obligor is excused only to the extent of the hindrance caused by the obligee. The obligee need not be responsible -- in the sense of Article 79 -- for the impairment he caused."[66]

Although it is said that "the view prevailed that it [Art. 80 CISG] is more closely related to exemptions and duty to cooperate in cases of impediments",[67] the Official Comment on Art. 7.1.2 UPICC stresses that, when the interference or contribution rule applies, the relevant conduct doesn't become excused non-performance but loss the quality of non-performance altogether.[68]

14.4.3.2 Damages proportionately reduced due to partial contribution

As discussed above, the conduct of the aggrieved party or the external events as to which it bears the risk may have made it absolutely impossible for the non-performing party to perform. In addition, it is also contemplated there is the possibility of one party's interference acting only as a partial impediment to performance by the other party and in such cases it will be necessary to decide the extent to which non-performance was caused by the first party's interference and to which it was caused by other factors.[69]

In application of the general principle established by Art. 7.1.2 UPICC (corresponding to the solution adopted by Art. 80 CISG) which restricts the exercised of remedies where non-performance is in part due to the conduct of the aggrieved party, Art. 7.4.7 UPICC limits the right to damages by providing that: "Where the harm is due in part to an act or omission of the aggrieved party or to another event as to which that party bears the risk, the amount of damages shall be reduced to the extent that these factors have contributed to the harm, having regard to the conduct of each of the parties." This article, together with its Official Comment can therefore be helpful in the interpretation of Art. 74 of the CISG read together with Arts. 77 and 80 in establishing the extent to which the defaulting party is excused from liability for damages due to the conduct of the aggrieved party.

Generally, it would indeed be unjust for an aggrieved party to obtain full compensation for harm for which it has itself been partly responsible.[70] It would be contrary to good faith and fairness for the creditor to have a remedy when it is responsible for the non-performance. The most obvious situation is the so-called mora creditoris, where the creditor directly prevents performance (e.g. access refused to a building site). But there are other cases where the creditor's behaviour has an influence on the breach and its consequences. For example, when there is a duty to give information to the other party, and the information given is wrong or incomplete, the contract is imperfectly performed. In other cases where there is also a non-performance by the debtor, the creditor may exercise the remedies for non-performance to a limited extent. When the loss is caused both by the debtor - which has not performed - and the creditor - which has partially caused the breach by its own behaviour - the creditor should not have the whole range of remedies.[71] It is clear that in such a case the amount of damages ought to be reduced proportionally. Such apportionment of damages will often involve a judicial discretion in weighing the different facts contributing to the eventual damages suffered.[72] However, the determination of each party's contribution to the harm may well prove to be difficult and will to a large degree depend upon the exercise of judicial discretion. In order to give some guidance to the court this article provides that the court shall have regard to the respective behaviour of the parties. The more serious a party's failing, the greater will be its contribution to the harm.[73]

More specifically, Enderlein & Maskow present several principles which could, in their view, be inferred from the regulation governing the most important case groups as follows: (a) When the consequences of the different causes can be delimited from one another, every cause has to be attributed to its legal remedy. A distinction will, however, have to be made of what caused the breach of contract. (b) When a breach of contract by the debtor and an act or omission by the creditor act in combination having the same effect, the act or omission of the creditor dominates. But exemption will become effective only in regard to the conduct concerned. The party in breach can, therefore, not claim a breach of contract because of the consequences of the act or omission of the creditor. The result can be a stalemate in which the contract is neither performed nor can it be avoided by any of the parties. (c) The last case to be considered here is the one where the failures of the two parties are so closely interwoven that their effects cannot be delimited and attributed to the breach of contract which is the result of that situation, such as when the buyer provides drawings which cannot, in part, be realized, and the seller, without referring back to the buyer, proceeds with modifications in the realization which do not meet the intentions of the buyer. In their view, it is appropriate in these cases to reduce the legal consequences which would be the result of a breach of contract where the causes of the breach are not taken into consideration. The reduction can be merely quantitative as in the case of damages, insofar also grounds for exemption on the part of the debtor would have to be, taken into account. But it may also take on a qualitative character when the right to avoidance of the contract is turned into a claim for damages, which might then be thwarted because of grounds for exemption, for it is assessed that the breach of contract because of the act or omission of the creditor has passed the threshold toward a fundamental breach. Or, the right to performance may be judged to have elapsed and the part of the debtor in the breach of the contract is paid off because of a claim for damages by the creditor.[74]

Finally, it must be noted that Art. 80 CISG covers only one aspect of the issue at stake, which deals with the loss suffered by the aggrieved party which results from his own unreasonable behavior. There is another situation where the loss resulting from the non-performance could have been reduced or extinguished by appropriate steps in mitigation. This is clear from the fact that the issue of contributory conduct is dealt with separately in the UNIDROIT Principles in Art. 7.4.7, whereas the mitigation duty is dealt separately with in Art. 7.4.8 (respectively dealt with in Art. 9:504 and Art. 9:505 PECL) which is to be focused below.

14.5 DUTY TO MITIGATE

14.5.1 In General

The party who is true to the contract cannot sit and wait for the other party to breach the contract, but must become active in order to minimize the loss or to prevent it at all.[75] In other words, even where the aggrieved party has not contributed either to the non-performance or to its effects, it cannot recover for loss it would have avoided if it had taken reasonable steps to do so.

In this respect, the mitigation doctrine, which is a generally admitted obligation in Common Law, though "not so largely and clearly consecrated in Civil Law", deals with such an "obligation for a creditor to minimise the damage he suffers because of the non-fulfilment by the debtor of his own commitments."[76 ]Now, a number of international awards have applied it as a general principle of international trade, not referring in particular to a Common Law system.[77] Indeed, it is said to "constitute the lex mercatoria in its present form",[78] and is regarded as "[o]ne of the most well-established general principles in arbitral case law".[79] Further, the awards in support on mitigation "rarely call up the lex mercatoria in so many words; they merely treat the principle as obvious."[80]

Mitigation has gained under the three instruments, it is regarded as one of the principles "capable of general application" as expressed in provisions of the CISG.[81] Under the CISG, Art. 77 is of particular relevance (the mitigation rule is also reflected in Arts. 85 and 86 concerning preservation of the goods), which limits damages by placing an obligation to mitigate damages on the aggrieved party: "A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated." Art. 77 CISG adopts the same principle as Art. 88 ULIS, but clarifies certain matters.[82]

In the Secretariat Commentary on Art. 73 of the 1978 Draft [draft counterpart of CISG Art. 77],[83] it is stated that Art. 77 (together with Arts. 85-88) is one of several articles which states a duty owed by the injured party to the party in breach.[84] However, "even if it is possible to refer to mitigation using such terms as a 'duty' or an 'obligation', the nature of this 'duty' is substantially different from other obligations under the CISG."[85] Because the first sentence of Art. 77 is worded in terms of a duty to mitigate, courts may require such mitigation, and allow a set-off in favor of the breaching party for failure of the non-breaching party to mitigate. The second sentence seems to take the approach that CISG Art. 77 was not intended to place liability on the injured party for failing to avoid damages but is meant to simply precluded an injured party from recovering damages which could have reasonably been avoided.[86] A third interpretation of Art. 77 takes the position that mitigation of loss can become a sword as well as a damages shield -- by drawing on the "general principles" provision of the CISG, Art. 7(2) to create a duty of "loyalty to the other party to the contract". Failure to mitigate damages may be a breach of this duty and result in recoverable damages.[87] It appears that the parameters of the duty to mitigate under Art. 77 are not clear. Presumbly it does not affect the aggrieved party's right to seek specific performance or his right to avoid the contract where a fundamental breach has occurred. Presumably too the greater particularity will have to be supplied in the light of the overall structure of the Convention, the general principles on which it is based (Art. 7), and the duty of good faith.[88]

Nonetheless, the significance of the deliberations in Art. 77 CISG is of no doubt. This mitigation duty has been adopted under the two Principles. In the UPICC, this principle is reflected in Art. 7.4.8 under the heading "Mitigation of Harm" and has been formulated as: "(1) The non-performing party is not liable for harm suffered by the aggrieved party to the extent that the harm could have been reduced by the latter party's taking reasonable steps. (2) The aggrieved party is entitled to recover any expenses reasonably incurred in attempting to reduce the harm." Indeed, it has been stated that the provision of the UPICC on contribution to harm (supra. 14.4) "must be read together in conjunction with the following article on mitigation of harm (Art. 7.4.8). While the present article [Art. 7.4.7] is concerned with the conduct of the aggrieved party in regard to the cause of the initial harm, Art. 7.4.8 relates to that party's conduct subsequent thereto."[89] The purpose of this article is to avoid the aggrieved party passively sitting back and waiting to be compensated for harm which it could have avoided or reduced. Any harm which the aggrieved party could have avoided by taking reasonable steps will not be compensated. It would be unreasonable from the economic standpoint to permit an increase in harm which could have been reduced by the taking of reasonable steps.[90] And a rule concerning "Reduction of Loss" can also be found in Art. 9:505 of the PECL, which resembles Art. 7.4.8 UPICC: "(1) The non-performing party is not liable for loss suffered by the aggrieved party to the extent that the aggrieved party could have reduced the loss by taking reasonable steps. (2) The aggrieved party is entitled to recover any expenses reasonably incurred in attempting to reduce the loss."

14.5.2 Reasonable Measures Taken

The idea underlying mitigation is that the aggrieved party cannot recover damages with respect to loss which he could have reasonably avoided. However, no exceptional efforts are required from that party; he only has to take such measures to mitigate loss as are reasonable in the circumstances concerned. According to Art. 77 CISG, the aggrieved party must take measures "as are reasonable in the circumstances". The type of measures that need to be undertaken depends on the criterion of reasonableness. The latter, in turn, depends on and will be construed in the light of the circumstances in question.[91] It is said that the duty to mitigate applies to an anticipatory breach of contract as well as to a breach in respect of an obligation the performance of which is currently due.[92] It follows that this provision refers the duty to mitigate to all kinds of loss. However, different types of loss can practicably give rise to a great variety of situations.

Although not specifically defined, on the one hand, reasonableness is specifically mentioned in thirty-seven provisions of the CISG and clearly alluded to elsewhere in the Uniform Sales Law. Reasonableness is a general principle of the CISG. As a general principle of the CISG, reasonableness has a strong bearing on the proper interpretation of all provisions of the CISG.[93] On the other hand, the principle of "reasonableness" plays a dominant and recurrent role in almost all of the provisions of the UPICC.[94] Although no blanket clause which defines the notion of reasonableness is found either in the CISG or the UNIDROIT Principles, reasonableness is generally defined in the PECL, which "also fits the manner in which this concept is used in the CISG [as well as the UPICC]. This definition can help researchers apply reasonableness to the CISG [as well as the UPICC] provisions in which it is specifically mentioned and as a general principle of the CISG [as well as the UPICC]."[95]

In this respect, Art. 1:302 PECL specializes "Reasonableness" as: "Under these Principles reasonableness is to be judged by what persons acting in good faith and in the same situation as the parties would consider to be reasonable. In particular, in assessing what is reasonable the nature and purpose of the contract, the circumstances of the case, and the usages and practices of the trades or professions involved should be taken into account." Generally speaking, reasonableness is to be judged by what parties acting in good faith and the same situation as the parties would consider to be reasonable. In deciding what is reasonable all relevant factors should be taken into consideration. Account should be taken of the nature and purpose of the contract. The circumstances of the case will have to be considered. Furthermore, the usages and practices of the trade or profession should be taken into account. These generally reflect the behaviour of reasonable parties.[96] "In general, it has been said that a measure is reasonable 'if under the particular circumstances, it could be expected to be taken by a person acting in good faith, or if it is 'adequate' and preventive with respect to the loss. In the evaluation of the situation, regard should be also had to the party's skills and position as a businessman, such as, for example, 'ingenuity, experience, and financial resources', etc. At that, relevant trade usage, if any, should be taken into account as well. The aggrieved party is not, in any way, obliged to take measures, which, in the circumstances concerned, are 'excessive' and entail unreasonably high expenses and risks. If the party refrains from such measures, he will not be considered as not having complied with Article 77."[97]

Although it does not seem possible to list every single measure which can be possibly implied in Art. 77 CISG, some examples of such measures will be given in order to illustrate how wide a range of possible mitigating measures can be. It is commented that such measures may frequently include a cover purchase or sale. It can also include the possibility that the buyer himself remedies defective goods delivered to the buyer. Although there is no obligation to avoid the contract even if the other party has committed or is expected to commit a fundamental breach of contract (Arts. 49 and 64 CISG), avoidance of the contract may be one of the reasonable measures which help to mitigate the losses of the injured party. If reasonable measures can be taken before an impending breach of contract, they have to be taken by the party threatened by loss. Such measures could include for instance suspension of performance under Art. 71.[98]

In sum, "[t]he steps to be taken by the aggrieved party may be directed either to limiting the extent of the harm, above all when there is a risk of it lasting for a long time if such steps are not taken (often they will consist in a replacement transaction: see Art. 7.4.5), or to avoiding any increase in the initial harm."[99] Indeed, the creditor should attempt to undertake everything possible in order to diminish the loss or at least to prevent its increase, and thus this rule may be regarded as just and fair.[100] On the other hand, the failure to mitigate loss may arise either because the aggrieved party incurs unnecessary or unreasonable expenditure or because it fails to take reasonable steps which would result in reduction of loss or in offsetting gains. However, the aggrieved party will not necessarily be expected to take steps to mitigate its loss immediately it learns of the breach; it will depend on whether its actions are reasonable in the circumstances. The aggrieved party is only expected to take action which is reasonable, or to refrain from action which is unreasonable, in the circumstances. Thus it need not act in any way that will damage its commercial reputation just to reduce the non-performing party's liability.[101] Evidently, a party who has already suffered the consequences of non-performance of the contract cannot be required in addition to take time-consuming and costly measures.[102] However, the decision on how and in what way an injured party should have mitigated his loss can be made only on the basis of careful examination of all circumstances of a concrete situation, criterion of reasonableness, and the type of loss in question.[103]

14.5.3 Effects of Failure to Mitigate

With regard to the legal effects of such failure, it follows from the wording of Art. 77 CISG "the party in breach may claim a reduction in the damages" that, non-fulfillment of this obligation by one party does not entail a claim for damages but rather leads to a situation where the party who is true to the contract cannot claim full compensation for damages. Reference is made here only to a party claiming damages. The rule of Art. 77 does not apply to other remedies."[104]Therefore, the failure to mitigate will not affect the injured party's claim for other remedies. The only exception is said to be the case where it was reasonable to expect the injured party to carry out certain actions, for example, in the form of avoidance of the contract or of the conclusion of a cover transaction, in order to mitigate the loss.[105] As regards the amount, it follows from Art. 77 CISG that if the aggrieved party fails to mitigate, the party in breach will have the right to claim reduction in damages "in the amount by which the loss should have been mitigated". In this respect, similar approaches can also be found in UPICC Art. 7.4.8(1) and PECL Art. 9:505(1).

On the other hand, frequently the aggrieved party will have to incur some further expenditure in order to mitigate its loss. The problem is that mitigation itself can bring about certain forms of loss. In other words, mitigation can often be the source of loss. In taking certain mitigating measures, an injured party may have to incur a number of different expenses such as, for example, the costs of storage, repair costs or brokerage costs. Both Art. 7.4.8(2) UPICC and Art. 9:505(2) PECL allow the aggrieved party to recover expenses reasonably incurred in attempts to avoid or mitigate the loss. Expenses are to be reimbursed even if they increased the total loss, provided they were reasonable. Costs which the party threatened by loss incurs for the measures he takes to mitigate his losses can also be claimed compensation for even when the, otherwise reasonable, measures were taken in vain.[106] It is also argued that, the wording of Art. 77 CISG is broad enough to require that losses out of a measure aimed at mitigation should be mitigated.[107]

One should note, however, despite any harm which the aggrieved party could have avoided by taking reasonable steps will not be compensated, the reduction in damages to the extent that the aggrieved party has failed to take the necessary steps to mitigate the harm must not however cause loss to that party. The aggrieved party may therefore recover from the non-performing party the expenses incurred by it in mitigating the harm, provided that those expenses were reasonable in the circumstances.[108]

Go to table of contents to full text of Remedies for Non-performance: Perspectives from CISG, UNIDROIT Principles & PECL.


FOOTNOTES: Chapter 14

1. See Treitel, Remedies for Breach of Contract: A Comparative Account, (1988); p. 76. Treitel submits that the full compensation of the expectation and reliance interests would operate either as too strong a disincentive to the assumption of contractual obligations, or to an undue raising of charges to cover such unlimited liability.

2. The theory of "adequate causation" holds that a wrongdoer is liable for a loss if his default appreciably increased the objective possibility of loss of a kind that in fact occurred; on the other hand, he is under no liability if his default was, according to the ordinary course of things, quite indifferent with regard to the consequence which in fact occurred, and only became a condition of the occurrence of the loss as a result of unusual or intervening events. (See Treitel, G.H. in "Remedies for Breach of Contract": David/ von Mehren eds., International Encyclopedia of Comparative Law, Bd. VII, Tübingen (1976); p. 66. Available online at: <http://tldb.uni-koeln.de/TLDB.html>; TLDB Document ID: 117200.)

3. See Djakhongir Saidov in "Methods of Limiting Damages under the Vienna Convention on the International Sale of Goods". (2001) Available online at <http://www.cisg.law.pace.edu/cisg/biblio/saidov.html>. Enderlein & Maskow also states that: "It is above all the Anglo-American (e.g. 2-715, paragraph 2 UCC) and the French legal families (Article 1150 Code civil) which provide for a limitation of damages by way of foreseeability. Other legal systems come to similar conclusions using the so-called theory of adequacy." (See Fritz Enderlein, Dietrich Maskow, infra. note 8.)

4. See Tallon, Denis in "Damages, Exemption Clauses, and Penalties": 40 Am.J.Comp.L. (1992); pp. 678-679. TLDB Document ID: 129100. Tallon states in this point: Foreseeability of harm is an interesting topic from a comparative point of view. Certain systems do not possess such a rule because foreseeability is merged with the notion of causality: it is the case of German, Swiss or Dutch law (art. 6-98 NBW). Other systems refer to foreseeability but have a different approach to it, despite superficial similarities. At common law, foreseeability is more or less a question of causality, and Section 2-715(2)(a) of the UCC speaks of "consequential damages." Moreover, according to the rules in Hadley v. Baxendale, foreseeability is a test for remoteness: what was not foreseeable at the time of the contract is a loss too remote to be compensated. And this is why foreseeability is also used in tortious liability. In the civil law countries where foreseeability is one of the criteria, such as in article 1150 of the French Civil Code and article 1125 of the Italian Civil Code, art. 1225 C.Civ. italien, the rule is more refined: foreseeability is a limit to compensation for direct harm; it is an exception to the full compensation principle in favor of the performing party when the latter acted in good faith. The limit does not apply in case of deliberate or grossly negligent non-performance. This stems from the more acute "moralist approach" of the civil law. But there is also an economic justification: a party may estimate in advance the amount of damages to be paid (or for which insurance must be brought). The rule is, by necessity, specific to breaches of contract.

5. See Peter Schlechtriem, Uniform Sales Law-The UN-Convention on Contracts for the International Sale of Goods, Manz, Vienna (1986); p. 97. Available online at <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem.html>.

6. Several other articles of the CISG further the goal of compensation. For example, Art. 75 stipulates that, a party's substitute purchase or resale after the other's default must be reasonable. Under this rule, a buyer cannot purchase more expensive goods after a breach and claim the difference between the contract price and the substitute price if goods were available at the contract rate.

7. See Arthur G. Murphey, Jr. in "Consequential Damages in Contracts for the International Sale of Goods and the Legacy of Hadley", 23 Geo. Wash. J. Int'l. L. & Econ. (1989); pp. 415-474. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/murphey.html>.

8. See Fritz Enderlein, Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods, Oceana Publication (1992); p. 300. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/enderlein.html>.

9. See Djakhongir Saidov, supra. note 3.

10. Supra. note 8, p. 301.

11. See Stoll in "Commentary on the UN Convention on the International Sale of Goods (CISG)", Peter Schlechtriem ed., (Second Edition, 1998); p. 568.

12. See Knapp, Commentary on the International Sales Law: The 1980 Vienna Sale Convention, Cesare Massimo Bianca & Michael Joachim Bonell eds. (1987); p. 542.

13. Infra. note 17.

14. Supra. note 7.

15. Supra. note 8.

16. See Treitel, supra. note 1, p. 160. The position is the same in Art. 7.4.4 of the UPICC and Art. 9:503 of the PECL. However, Murphey submits (supra. note 7): "Limiting effective notice to the time of the contracting will not always discourage breaches. For instance, a party may discover at the time he or she decides to breach that losses will be much greater than were 'foreseeable' at the time of contracting. In such a case, a rule which focuses on the time of contracting will be less discouraging than one which focuses on the time of breach. Nevertheless, if the notice time in the C.I.S.G., like the rule in Hadley, discourages most intentional breaches, this author would argue that this is a good result."

17. See P.D.V. Marsh, Comparative Contract Law: England, France, Germany, Gower Publishing (1994); p. 314.

18. See Djakhongir Saidov, supra. note 3.

19. Supra. note 17.

20. See Djakhongir Saidov, supra. note 3.

21. Supra. note 10.

22. Supra. note 12.

23. See Jeffrey S. Sutton in "Measuring Damages Under the United Nations Convention on the International Sale of Goods": 50 Ohio State Law Journal (1989). Available online at <http://www.cisg.law.pace.edu/cisg/biblio/sutton.html>.

24. See Djakhongir Saidov, supra. note 3.

25. Supra. note 7.

26. See Djakhongir Saidov, supra. note 3.

27. See e.g., Bundesgerichtsh of 24 October 1979 where the German Supreme Court held that: "The Court of Appeals was also correct that ULIS Article 82 requires a subjective and objective test, that the test can conclusively be met by a showing of trade custom as to foreseeability, and that a survey of persons in the trade is a proper means of determining those facts under Code of Civil Procedure, section 346." Available online at <http://cisgw3.law.pace.edu/cases/791024g1.html>. (The case was decided on the basis of Art. 82 ULIS, which contained the same rule of foreseeability as provided for in Art. 74 CISG.)

28. Art. 9 CISG states: "(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. (2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned."

29. See Djakhongir Saidov, supra. note 3.

30. Supra. note 7.

31. Supra. note 12, p. 541.

32. Supra. note 8, p. 302.

33. See Djakhongir Saidov, supra. note 3.

34. Ibid. However, for the sake of practicing, as well as considering their explicit texts and the role played by uniform law instruments in avoiding those confusions caused by so close an inter-connection of these two concepts in different legal systems, one may advisably lay in international commercial disputes everything on the foreseeability rule, unless the applicable law provides otherwise. Moreover, the "international character" of the uniform law instruments such as CISG as well as the need to promote uniformity in its application should prevent domestic courts from embedding a causation requirement into an international dispute seeking damages. In fact, both Art. 74 CISG and Arts. 7.4.2, 7.4.4 UPICC presuppose a sufficient causal link under foreseeability between the non-performance and the harm.

35. See Sieg Eiselen in "Remarks on the Manner in which the UNIDROIT Principles of International Commercial Contracts May Be Used to Interpret or Supplement Article 74 of the CISG". Available online at <http://www.cisg.law.pace.edu/cisg/principles/uni74.html>.

36. See Comment on Art. 7.4.4 UPICC.

37. See Comment and Notes to the PECL: Art. 9:503. Comment B. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp74.html>.

38. Such a rule could at best be deduced from the underlying general principles of the CISG (Arts. 7(2); 40 and 43(2)).

39. Supra. note 36.

40. Supra. note 35.

41. Supra. note 36.

42. Supra. note 35.

43. See Alejandro M. Garro in "The Gap-Filling Role of the UNIDROIT Principles in International Sales Law: Some Comments on the Interplay between the Principles and the CISG": Tulane Law Review, (April 1995); p. 1188.

44. Supra. note 35.

45. See Comment 1 on Art. 7.4.3 of UPICC.

46. See Comment 2 on Art. 7.4.3 of UPICC.

47. See Djakhongir Saidov, supra. note 3.

48. Supra. note 35.

49. See Jacob S. Ziegel in "Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods". Available online at <http://www.cisg.law.pace.edu/cisg/text/ziegel80.html>.

50. See Fouchard, Gaillard, Goldman, International Commercial Arbitration, Emmanuel Gaillard and John Savage ed., The Hague (1999); p. 820. TLDB Document ID: 130600.

51. See ICC Award No. 6363, YCA 1992, p. 201; TLDB Document ID: 206363. For more on the interpretation of estoppel, see Black, Henry Campell, Black's Law Dictionary, 6th ed., St. Paul (1990); TLDB Document ID: 100700.

52. See English Court of Exchequer, Cave v. Mills (1862), Hurlstone & Norman, 913 at 927.

53. Principle No. I.7 of the TLDB List.

54. See ICJ North Sea Continental Shelf Case, Separate Opinion of Judge Fouad Ammoun, ICJ Rep. (1969); pp. 120-121. TLDB Document ID: 300300.

55. Supra. note 8, p. 335.

56. This provision is based on a proposal by the German Democratic Republic. See A.Conf. 97/C.1/L.217 (O.R. 134). This provision resembles ULIS Art. 74 (3) which states: "The relief provided by this Article for one of the parties shall not exclude the avoidance of the contract under some other provision of the present Law or deprive the other party of any right which he has under the present Law to reduce the price, unless the circumstances which entitled the first party to relief were caused by the act of the other party or of some person for whose conduct he was responsible."

57. See Comments 1, 2 on Art. 7.1.2 UPICC.

58. See Comment 2 on Art. 7.4.7 UPICC.

59. See Comment and Notes to the PECL: Art. 1:305. Comment C. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp80.html>.

60. See Comment and Notes to the PECL: Art. 9:504. Comment A. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp74.html>.

61. Ibid., Comment B.

62. See Comment and Notes to the PECL: Art. 8:101. Comment B(iii). Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp80.html>.

63. Ibid., Note 3.

64. See Comment 3 on Art. 7.4.7 UPICC.

65. Supra. note 8, p. 336.

66. Supra. note 5, p. 105-106.

67. See Jelena Vilus in "Provisions Common to the Obligations of the Seller and the Buyer": Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lectures, Oceana (1986); p. 256. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/vilus.html>.

68. See Comment 1 on Art. 7.1.2 UPICC.

69. Ibid.

70. See Comment 1 on Art. 7.4.7 UPICC.

71. Supra. note 62.

72. Supra. note 35.

73. Supra. note 64.

74. Supra. note 8, pp. 338-339.

75. Supra. note 12, p. 560.

76. See Goldman, Berthold in "The Applicable Law: General Principles of Law - the Lex Mercatoria": Lew ed., Contemporary Problems in International Arbitration, London (1986); p. 125. TLDB Document ID: 112400.

77. See e.g. ICC Award, Case Nos .2103/72, 101 Clunet 902 (1974); 2748/74, 102 Clunet 905 (1975); 2291/75, 103 Clunet 989 (1976); 2520/75, 103 Clunet 992 (1976).

78. See Mustill, Michael in "The New Lex Mercatoria: The First Twenty-five Years": Arb.Int'l (1988); p. 113. TLDB Document ID: 126900. Also Lowenfeld, Andreas F. in "Lex Mercatoria: An Arbitrator's View": Arb.Int'l (1990); p. 148. TLDB Document ID: 126000.

79. See Fouchard, Gaillard, Goldman in "International Commercial Arbitration": Emmanuel Gaillard & John Savage ed., The Hague (1999); p. 832. TLDB Document ID: 130600.

80. See Mustill, supra. note 78, n. 100.

81. See Rolf Herber in "English Commentary on the UN Convention on the International Sale of Goods (CISG)": Comment on Art. 7, Peter Schlechtriem ed., Oxford (1998). TLDB Document ID: 117900.

82. First of all, it makes clear that the aggrieved party's duty to mitigate loss includes not only loss of assets (damnum emergens) but also loss of profit (lucrum cessans). The phrase "loss resulting from the breach" appears in the English versions of both the CISG and ULIS. However, a change in the wording of the French versions (la perte . . . resultant de la contravention) (CISG) instead of (la perte subie) (ULIS) is intended to indicate that the aggrieved party is obliged not only to take reasonable measures to mitigate loss which has already occurred, but also to counteract imminent loss. Art. 77, second sentence, clearly lays down that damages cannot be claimed in respect of loss which could have been mitigated by the aggrieved party, while Art. 88 ULIS leaves open the extent to which damages are to be reduced in the event of a failure to observe the requirement to mitigate loss. (Supra. note 11, p. 585.) Art. 88 of the ULIS reads: "The party who relies on a breach of the contract shall adopt all reasonable measures to mitigate the loss resulting from the breach. If he fails to adopt such measures, the party in breach may claim a reduction in the damages."

83. Art. 73 of the 1978 Draft reads: "The party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount which should have been mitigated." The match-up "indicates that article 73 of the 1978 Draft and CISG article 77 are substantively identical".97 "The only modification to 1978 Draft article 73 were to substitute 'A' for 'The' at the outset and to revise the last clause to read: damages in the amount 'by which the loss' should have been mitigated. The Secretariat Commentary on 1978 Draft article 73 should therefore be relevant to the interpretation of CISG article 77." Thus, to the extent it is relevant to the Official Text, the Secretariat Commentary on Art. 73 of the 1978 Draft is perhaps the most authoritative source one can cite. "It is the closest counterpart to an Official Commentary on the CISG." See the match-up available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-d-77.html>.

84. See Secretariat Commentary on Art. 73 of the 1978 Draft, Comment 2. Available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-77.html>.

85. See Djakhongir Saidov, supra. note 3.

86. See Eric C. Schneider in "Measuring Damages under the CISG". Available online at <http://www.cisg.law.pace.edu/cisg/text/cross/cross-74.html>.

87. See Peter Schlechtriem in "Recent Developments in International Sales Law": 18 Israel L.R. (1983); pp. 320-321.

88. See Jacob S. Ziegel in "Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods". Available online at <http://www.cisg.law.pace.edu/cisg/text/ziegel77.html>.

89. See Comment 4 on Art. 7.4.7 UPICC.

90. See Comment 1 on Art. 7.4.8 UPICC.

91. See Djakhongir Saidov, supra. note 3.

92. Supra. note 84, Comment 4.

93. See Overview Comments on Reasonableness by Albert H. Kritzer. Available online at: <http://www.cisg.law.pace.edu/cisg/text/reason.html#view>.

94. E.g., UPICC Arts. 1.8(2), 3.8, 3.9, 3.16, 4.1(2), 4.8(2)(d), 5.4(2), 5.6, 5.7(2), 5.8, 6.1.1(c), 6.1.16, 6.1.17, 7.1.6, 7.1.7, 7.2.2, 7.2.5, 7.3.2, 7.4.6(2), 7.4.8, 7.4.13.

95. Supra. note 93.

96. See Comment and Notes to the PECL: Art. 1:302. Comment B. Available online at <http://www.cisg.law.pace.edu/cisg/text/reason.html>.

97. See Djakhongir Saidov, supra. note 3.

98. Supra. note 8, p. 308.

99. Supra. note 90.

100. Supra. note 67, p. 252.

101. See Comment and Notes to the PECL: Art. 9:505. Comment A. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp77.html>.

102. Supra. note 90.

103. See Djakhongir Saidov, supra. note 3.

104. See Molineaux, Charles in "Moving Toward a Lex Mercatoria - A Lex Constructionis": 14 J. Int'l Arb. (1997); No. 1, p. 65. TLDB Document ID: 126700.

105. See Djakhongir Saidov, supra. note 3.

106. Supra. note 12, p. 561.

107. See Djakhongir Saidov, supra. note 3.

108. See Comment 2 on Art. 7.4.8 UPICC.


CHAPTER 15. DAMAGES UPON TERMINATION

15.1 General Considerations
15.2 Damages upon Substitute Transactions
      15.2.1 Introduction
      15.2.2 Presupposed Situations Calling for Concrete Calculation
      15.2.3 Substitute Transaction must be Reasonable Substitute
15.3 Damages upon Current Price
      15.3.1 Introduction
      15.3.2 Presupposed Situations Calling for Abstract Calculation
      15.3.3 Determination of "Current Price"
    15.3.3.1 In general
    15.3.3.2 Reference point
    15.3.3.3 Relevant place
15.4 Further Damages

     The rule adopted in most legal systems, and the Vienna Convention as well, is that, in addition to avoidance, the party aggrieved by the breach may always claim damages to compensate for the loss caused by avoidance.[1] The fact that, by virtue of termination, the contract is brought to an end, does not deprive the aggrieved party of its right to claim damages for non-performance [...].[2]

15.1 GENERAL CONSIDERATIONS

Under the CISG, Arts. 75 and 76 provide two methods, representing specific applications of Art. 74, for measuring damages when a party avoids a contract due to a fundamental breach of the contract by the other party.

When the contract is avoided, damages generally amount to the difference between the contract price and the costs of a cover transaction (Art. 75); the cover transaction must, of course, be undertaken within a reasonable time after avoidance. This coincides with the duty to mitigate damages in Art. 77. Where the goods have a market price, the injured party can also measure his damages "abstractly", i.e., independently from any cover transaction, Art. 76. This method of measuring damages - the so-called market-price rule - presupposes that a cover transaction has not been undertaken with regard to the contract breached.[3]

While Arts. 75 and 76 specify the types of damages measurements authorized by the Convention, they also include the residual phrase, "as well as any further damages recoverable under article 74". Thus, losses which cannot be compensated invoking the latter two articles, can be so compensated under the broader rule of Art. 74 (see Chapter 13). In other words, Art. 74 establishes the rule for the measurement of damages whenever and to the extent that Arts. 75 and 76 are not applicable. Given the language and juxtaposition of the three articles, a tribunal could view Arts. 75 and 76 as specific applications of the sweeping language of the first sentence of Art. 74 and not as limitations placed on it. In a word, Arts. 75 and 76 appear to supplement Art. 74.[4]

15.2 DAMAGES UPON SUBSTITUTE TRANSACTIONS

15.2.1 Introduction

Judicial discretion in the assessment of damages can be reduced by standardizing the damages in question.[5] To this end, Art. 75 CISG measures damages concretely on the basis of a substitute transaction (a purchase in replacement or resale), and reads: "If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74."

Briefly speaking, damages under this provision are established by the action of the injured seller in reselling the goods and the action of the injured buyer in obtaining cover, that is, buying the goods elsewhere. The measure of damages is the difference between the price under the contract and the price of the substitute transaction, which allows the injured party to measure damages without having to show the market price for the goods. This article can be traced back to Art. 85 ULIS. However, a change between this provision and Art. 75 CISG has been noted by Stoll: "ULIS places abstract calculation of damages using the market price rule (Article 84) before concrete calculation of damages by reference to a substitute transaction (Article 85), whereas the Convention makes concrete calculation of damages the primary method and abstract calculation of damages using the market price rule is subsidiary to it (Article 76). That indicates the change in the relationship between the two rules. Moreover, Article 85 ULIS merely requires a substitute transaction to have been carried out 'in a reasonable manner', while the Convention adds by way of clarification that the substitute transaction must also have taken place 'within a reasonable time after avoidance'. Finally, Article 75 adds that the party entitled to damages may claim 'any further damages recoverable under Article 74'. This latter addition is not a substantial change, because under Article 86 ULIS the duty to pay damages is extended so as to include all further loss. . . ."[6]

On the other hand, it is clear that, the only modification of Art. 75 CISG to its original provision, i.e. 1978 Draft Art. 71, was to change a conjunction to "as well as" rather than "and" (apart from an adjustment of the article reference to conform to the new sequence). The Secretariat Commentary on 1978 Draft Art. 71 should therefore be relevant to the interpretation of CISG Art. 75.[7] In the UNIDROIT Principles, Art. 7.4.5 provides under the heading "Proof of harm in case of replacement transaction" that: "Where the aggrieved party has terminated the contract and has made a replacement transaction within a reasonable time and in a reasonable manner it may recover the difference between the contract price and the price of the replacement transaction as well as damages for any further harm." This article is regarded as corresponding "in substance to Art. 75 CISG" and establishing, alongside the general rules applicable to the proof of the existence and of the amount of the harm, one of the presumptions which may facilitate the task of the aggrieved party.[8] The use of this provision and its Commentary as a potential aid to the interpretation of CISG Art. 75 is thus self-evident.[9] The author thinks that it is the case for using of Art. 9:506 PECL, which reads similarly: "Where the aggrieved party has terminated the contract and has made a substitute transaction within a reasonable time and in a reasonable manner, it may recover the difference between the contract price and the price of the substitute transaction as well as damages for any further loss so far as these are recoverable under this Section." and the Comments thereon. With these relevant sources, as well as other scholarly writings concerned, the author will further the concrete calculation established under Art. 75 CISG below.

15.2.2 Presupposed Situations Calling for Concrete Calculation

The wording of Art. 75 makes it clear that, this provision concerns the measure of damages in situations where there has been an avoidance or cancellation of the contract by an aggrieved buyer or seller, and applies when the buyer, after the seller's breach, has bought goods in replacement of those that were the subject of the contract, or when the seller, after the buyer's breach, has sold the contract goods.

"It is a condition for the calculation of damages under Article 75 that the contract has been avoided (before) (c. Articles 49; 61 and 72; 73; and 81). Otherwise, if the seller has declared the contract avoided, he can sell the goods and if the buyer has declared the contract avoided, he can procure the goods."[10] Further, "[t]he presumption comes into play only if there is a replacement transaction and not where the aggrieved party has itself performed the obligation which lay upon the non-performing party (for example when a shipowner itself carries out the repairs to its vessel following the failure to do so of the shipyard which had been entrusted with the work)."[11] However, "[t]he party who is true to the contract does not always have an obligation to effect a substitute transaction, unless the loss can be mitigated in comparison to the calculation under Art. 76."[12] Note in particular that Art. 75 imposes no duty on the seller to notify the buyer of his intention to resell and the fact that, literally construed, the article only applies to a resale of goods that have been identified to the contract at the time of the buyer's breach.[13]

Nonetheless, if the contract has been avoided, the formula contained in Art. 75 will often be the one used to calculate the damages owed the injured party since, in many commercial situations, a substitute transaction will have taken place.[14] "Where the contract has been avoided, both parties are released from any future performance of their obligations and restitution of that which has already been delivered may be required. Therefore, the buyer would normally be expected to purchase substitute goods or the seller to resell the goods to a different purchaser. In such a case the measure of damages could normally be expected to be the difference between the contract price and the resale or repurchase price as is provided under article 71 [draft counterpart of CISG article 75]."[15]

In short, it is often appropriate to measure the aggrieved party's loss by the cost of procuring a substitute performance. Where the aggrieved party has in fact made a reasonable cover transaction, PECL Art. 9:506 (as well as Art. 7.4.5 UPICC and Art. 75 CISG) provides that the difference between the contract price and the cover price is recoverable.[16]

15.2.3 Substitute Transaction must be Reasonable Substitute

As noted above, Art. 75 CISG "sets forth a means of calculating damages when the contract has been avoided and replacement goods have in fact been purchased or the seller has in fact resold the goods".[17] In such cases, damages are to be measured by the difference between the cost of the substitute transaction and the contract price. However, it is subject to some restrictions. "The condition provided for in Art 75 is that the replacement purchase or the resale must be made 'in a reasonable manner and within reasonable time' after avoidance. Here the term 'reasonable manner' is to be interpreted as the duty of the buyer to buy the goods at the lowest possible price and of the seller to sell them at the highest possible price. The 'reasonable time' starts to run at the time when the aggrieve party avoided the contract."[18]

In other words, it is to be interpreted in such a way that the party who is true to the contract must try to effect the substitute transaction either as the buyer at the lowest possible price or as the seller at the highest possible price. Other contractual stipulations may have to be taken into account, e.g. the duration of the period of guarantee. An unreasonable substitute transaction cannot be considered to measure the damages. This follows, inter alia, from the obligation under Art. 77 to mitigate losses. Jurisdiction in regard to Art. 85 ULIS, which contains a relevant rule, in respect of the reasonable manner, called for a cautious and circumspect businessman. Furthermore, the substitute transaction has to be effected within a reasonable time. This is to prevent the loss from further increasing under worsening market conditions.[19]

The Secretariat Commentary makes it clear: "For the substitute transaction to have been made in a reasonable manner within the context of article 71 [draft counterpart of CISG article 75], it must have been made in such a manner as is likely to cause a resale to have been made at the highest price reasonably possible in the circumstances or a cover purchase at the lowest price reasonably possible. Therefore, the substitute transaction need not be on identical terms of sale in respect of such matters as quantity, credit or time of delivery so long as the transaction was in fact in substitution for the transaction which was avoided."[20]It should also be noted that the time limit within which the resale or cover purchase must be made for it to be the basis for calculating damages under article 71 [draft counterpart of CISG article 75] is 'a reasonable time after avoidance'. Therefore, this time limit does not begin until the injured party has in fact declared the contract avoided.[21]If the resale or cover purchase is not made in a reasonable manner or within a reasonable time after the contract was avoided, damages would be calculated as though no substitute transaction had taken place. Therefore, resort would be made to article 72 [draft counterpart of CISG article 76] and, if applicable, to article 70 [draft counterpart of CISG article 74][22]

However, the substitute transaction may occur in a different situation than that provided for in the contract. The amount of damages, therefore, will be altered to reflect any increased costs or expenses saved. On the other hand, the difference in price between the avoided contract and the contract which was newly concluded can, however, be the result of different terms, e.g. guarantee, or of different auxiliary costs, e.g. packaging, transportation). Due account has to be taken of this situation, i.e. the price difference has to be adjusted accordingly.[23] Under the U.C.C. language, items such as transportation expenses saved by the aggrieved party in a substitute transaction are deducted from cover or resale damages. A similar result can be reached under Art. 75 of the Convention by construing the phrase "price in the substitute transaction" to permit such adjustment. Equitable considerations demand this construction, given that increased transportation costs and similar items of extra expense associated with a substitute transaction would constitute losses suffered "as a consequence of breach" and thus would be recoverable under CISG Art. 74.[24] It is supported by Art. 7.4.2 (1) UPICC which clearly requires in this respect "taking into account any gain to the aggrieved party resulting from its avoidance of cost or harm" when applying the full compensation rule.

To sum up, where the aggrieved party has in fact made a cover transaction, the difference between the price of the substitute transaction and the price of the avoided original contract is the loss to be recovered. However, the replacement transaction must be performed within a reasonable time and in a reasonable manner so as to avoid the non-performing party being prejudiced by hasty or malicious conduct.[25] If the substitute transaction occurs in a different place from the original transaction or is on different terms, the amount of damages must be adjusted to recognize any increase in costs (such as increased transportation) less any expenses saved as a consequence of the breach.[26] In any event, the aggrieved party cannot recover the difference between the contract price and the price of an alternative transaction which is so different from the original contract in value or kind as not to be a reasonable substitute.[27]

15.3 DAMAGES UPON CURRENT PRICE

15.3.1 Introduction

There are occasions when the buyer or seller does not make a replacement purchase or resale, respectively, but instead, due to a breach of contract, prefers to avoid the contract. In such cases the question arises as to how compensation should be calculated. This situation is known in all legal systems; in the civil law countries the so-called abstract damages are calculated, as opposed to concrete damages which occur when a purchase in replacement or resale took place and are thus easier to calculate.[28]

Under the CISG, it is Art. 76 that measure such abstract damages, which reads: "(1) If the contract is avoided and there is a current price for the goods, the party claiming damages may, if he has not made a purchase or resale under article 75, recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under article 74. If, however, the party claiming damages has avoided the contract after taking over the goods, the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance. (2) For the purposes of the preceding paragraph, the current price is the price prevailing at the place where delivery of the goods should have been made or, if there is no current price at that place, the price at such other place as serves as a reasonable substitute, making due allowance for differences in the cost of transporting the goods." Thus, instead of gauging damages by the price differential of a substitute transaction, Art. 76 CISG authorizes damages on the basis of the market price at the time of avoidance.

This provision corresponds to Art. 84 ULIS, but differs from it in some important respects.[29] With regard to its original provision, i.e. 1978 Draft Art. 72, it has been noted that: "Paragraph (2) of CISG article 76 and paragraph (2) of 1978 Draft article 72 are substantively identical. Nevertheless, the Secretariat Commentary on 1978 Draft article 72 is only of limited utility, as paragraph (1) is significantly different."[30] In the UNIDROIT Principles, Art. 7.4.6 provides under the heading "Proof of harm by current price" that: "(1) Where the aggrieved party has terminated the contract and has not made a replacement transaction but there is a current price for the performance contracted for, it may recover the difference between the contract price and the price current at the time the contract is terminated as well as damages for any further harm. (2) Current price is the price generally charged for goods delivered or services rendered in comparable circumstances at the place where the contract should have been performed or, if there is no current price at that place, the current price at such other place that appears reasonable to take as a reference." This article is said to "corresponds in substance to Art. 76 CISG", and is prescribed to "facilitate proof of harm where no replacement transaction has been made, but there exists a current price for the performance contracted for."[31] This provision and its Comments may thus play as a potential aid to the interpretation of CISG Art. 76. As is the case for Art. 9:507 PECL, which reads briefly: "Where the aggrieved party has terminated the contract and has not made a substitute transaction but there is a current price for the performance contracted for, it may recover the difference between the contract price and the price current at the time the contract is terminated as well as damages for any further loss so far as these are recoverable under this Section." and the Comments thereon. With these relevant sources, as well as other scholarly writings concerned, the author will further the abstract calculation established under Art. 76 CISG below.

15.3.2 Presupposed Situations Calling for Abstract Calculation

Just like Art. 75, Art. 76 CISG presupposes that the original contract has actually been avoided. However, the abstract calculation of the damages provided for in Art. 76 is possible only when the obligee has not effected a substitute transaction. The reasons for his inaction are irrelevant here.[32] To meet the requirement, it is enough that no resale or cover purchase took place in fact or where it is impossible to determine which was the resale or purchase contract in replacement of the contract which was breached or where the resale or purchase was not made in a reasonable manner and within a reasonable time after avoidance, as is required by Art. 75.[33]

The abstract method of calculating damages does not require the obligee to have tried concluding a substitute transaction. Unless the loss can be mitigated in comparison to the calculation under Art. 76. The obligee cannot ignore the results of an actual resale or covering purchase and claim higher damages. In other words, if the obligee effects a cover transaction and then measures his damages according to the abstract method because this is more favourable to him, he acts dishonestly and violates the principle of good faith. In such a case, the obligor can remind him of his duty to mitigate losses under Art. 77. On the other hand, it cannot be excluded that the obligee first measures the loss abstractly and then proceeds to a cover transaction. There can be no objection against it if this is more favourable to him and if, in so doing, he uses the market developments in his favour. Should it become clear, however, that a cover transaction is possible only under more unfavourable terms and this is transaction carried out within a reasonable time, additional differences in price can be claimed as further damages. In addition, when the obligee purchases and sells continuously and, therefore, no contract can be qualified as a substitute purchase or sale, losses can also be calculated abstractly under Art. 76. Some authors assume that it is always at the buyer's discretion to decide whether he measures his losses according to the abstract or the concrete method, hence an abstract calculation would be admissible in the case of a substitute transaction. But an abstract calculation that is preceded by a cover transaction is admissible and advisable only when the cover transaction was not effected in a reasonable manner.[34]

It appears that a party that has entered into a substitute transaction within the meaning of Art. 75, therefore, must proceed under that provision and cannot claim damages under Art. 76. An attempt at resale or cover that does not meet the requirements of Article 75 (e.g., because the substitute transaction did not occur within a reasonable time after avoidance), however, does not prevent the aggrieved party from claiming market price damages under Art. 76. To avoid over-compensating the aggrieved party, nevertheless, such substitute transactions should be deemed to establish an upper limit on the amount of damages recoverable under Art. 76, although the text of the Convention does not mandate this result.[35]

15.3.3 Determination of "Current Price"

15.3.3.1 In general

A third requirement contained in Art. 76 calling for abstract damages is that "there is a current price for the goods". The concept of "current price" is essential when applying Art. 76, since the abstract calculation is based on "the difference between the price fixed by the contract and the current price".

Art. 7.4.6 (2) UPICC defines the "current price" as "the price generally charged for goods delivered or services rendered in comparable circumstances at the place where the contract should have been performed or, if there is no current price at that place, the current price at such other place that appears reasonable to take as a reference". Its Official Comment states accordingly: "current price" is the price generally charged for the goods or services in question. The price will be determined in comparison with that which is charged for the same or similar goods or services. This will often, but not necessarily, be the price on an organised market. Evidence of the current price may be obtained from professional organizations, chambers of commerce, etc.[36]

In this respect, Knapp notes that: "The concept of a current price does not presuppose official or unofficial market quotations as is required in the case of stock exchange goods. Any goods that are available on the market or elsewhere do have a market price. An exception could be goods which are made under special order by the buyer and for which damages would have to be calculated under Article 74 and not Article 76."[37]

15.3.3.2 Reference point

As for the reference point for the measure of damages, the 1978 Draft stated as the decisive time such time at which the injured party first had the right to declare the contract avoided. This was supposed to prevent speculation on the part of the obligee. "The rule was found to be objectionable in Vienna, however, because it was too uncertain and gave too much discretion to the courts, especially in cases of anticipatory breach. These objections finally led to choosing the 'declaration of avoidance' or the 'taking over' of the goods as the reference point for calculating damages, the earlier of the two being decisive."[38]Thus, CISG Art. 76 now contains two tests to determine the time of the current price and damages are thus generally measured by the market price "at the time of avoidance"; if the aggrieved party avoids the contract after "taking over the goods", however, the reference point is "the time of such taking over".[39]

However, the time of avoidance of contract may in practice be difficult to ascertain and could therefore lead to abuse. For instance, the party who plans to avoid the contract may speculate by waiting to avoid the contract at a time which, financially speaking, is more favorable for him.[40] To avoid speculation, the time limit for avoidance has to be taken into consideration. Insofar as there are no time limits for avoidance of a contract, Art. 77 is to be consulted in regard to the obligation to mitigate losses.[41]If a party delays in declaring avoidance and the difference between the market and the contract price increases, he may be held to have violated his duty to mitigate damages.[42] On the other hand, to largely exclude speculations, at least on the part of the buyer, another time was fixed for the taking over of the goods.[43] The intention of fixing such an early time is to prevent the buyer from speculating on the movement of market prices and delaying avoidance of the contract.[44] In order to keep possible abuses to a minimum, Art. 76 provides that in cases where the party claiming damages has avoided the contract "after taking the goods", the "current price of such taking over shall be applied instead of the current price at the time of avoidance".[45]

However, the latter alternative reference point of "after taking over the goods" is hardly understandable according to some other commentators.[46] Nonetheless, it is broadly recognized that this alternative "prevents an avoiding buyer who has received delivery from manipulating the time of avoidance in order to increase the seller's liability." Moreover, Honnold holds that: Despite this apparent purpose, Art. 76(1) does not limit the application of the alternative measuring point to buyers. It might therefore apply, e.g., to an avoiding seller who delivered and then "took over" the goods after they were wrongfully rejected by the buyer. However, the alternative should not apply when an aggrieved buyer rejects the goods immediately after the inspection permitted by CISG Art. 38.[47]

15.3.3.3 Relevant place

In regard to the place where the current price is to be determined, Art. 76 refers to: a) "the place where delivery of the goods should have been made", or alternatively b) "if there is no current price at that place", then "such other place as serves as a reasonable substitute". It should also be mentioned that Art. 76 reminds the contracting parties that "the allowance for differences in the cost of transporting the goods" should be added.[48]

In other words, the decisive place is the place where the delivery was supposed to take place or the place, if the goods were taken over, where the delivery actually took place. According to Art. 31, this is the place of delivery. While this place may indeed be reasonable to the seller, it may well entail difficulties for the buyer. Since the place of delivery in many cases, e.g. handing over to the first carrier, is located in the seller's country, it can be difficult for the buyer to prove damages based on market prices in the seller's country.[49] Sutton notes in this respect: "In traditional international sales contracts, the place of delivery is the port of the first carrier for transportation to the buyer. For the seller, this rule poses few problems, as the port is likely to be in his or her country, and the market information for the goods will normally be readily available. The buyer, on the other hand, often will be far removed both from the seller's country and from current information concerning the markets in the seller's country. In a destination contract, in which the seller is obligated to deliver the goods to a port in the buyer's country, the reverse problem arises; the buyer has easy access to the local market, but the seller is often far removed from it." Sutton thus advises that: "One solution to these problems is to seek cover under article 75, which eliminates the burden on the buyer or seller of establishing the market price of the goods in what may be a distant country. Another option is to include in the contract a more predictable reference point for measuring the current market price by, for example, establishing a specific locale as the determinative market."[50]

On the other hand, if no current market price exists at the place where delivery of the goods should have been made, Art. 76(2) states that the parties should look to another market that represents a "reasonable substitute". When another place is found, the differing cost of transportation is to be included in calculating the price difference. It cannot be generally defined which other place might be considered as reasonable. One may find it difficult to imagine why there should be no current price at the contractual place of delivery. Rather it suggests that there is no current price at all.[51] Presumably there is some flexibility in Art. 76(2) and a court may be able to substitute the price obtaining at the place of arrival of the goods where that is a more reasonable market for a hypothetical covering purchase.[52] However, if a reasonable substitute market cannot be found, then the parties will not be able to measure damages under Art. 76. If no such price exists, damages must be calculated under Art. 74.[53]

15.4 FURTHER DAMAGES

Both Arts. 75 and 76 of the CISG contain a phrase of "as well as any further damages recoverable under article 74". Such provisions recognize that the injured party may incur additional losses, including loss of profit, which would not be compensated by the basic formula contained thereof. In such a case the additional losses may be recovered under Art. 74, provided that, of course, the conditions of Art. 74 are satisfied.[54] It follows that the non-performing party may also be liable for any further loss which the aggrieved party proves it has suffered. In other words, the rule that the aggrieved party may recover the difference under both Arts. 75 and 76 establishes "a minimum right of recovery". The aggrieved party may also obtain damages for additional harm which it may have sustained as a consequence of termination.[55]

On the one hand, to carry out a substitute transaction requires additional costs which are not covered and compensated for by the difference in price. If the substitute transaction had been possible without avoidance of the original contract, the seller would suffer further losses in regard to the profit he missed. Additional cost in doing business or lost profit can also constitute further damages, even if there is no difference between the contract price and the price in the substitute transaction, e.g. if prices have fallen in the case of an intended resale of the goods. In such a case further damages are the only losses suffered.[56] On the other hand, such further damages may occur when the loss is calculated abstractly at first, but it becomes clear later that a cover transaction is possible only under more unfavourable terms.[57] Among other things, "[t]he most usual type of further damages to be recovered under article 70 [draft counterpart of CISG article 74] would be the additional expenses which may have been caused as a result of the receipt of non-conforming goods or the necessity to purchase substitute goods as well as losses which may have been caused if goods purchased in the substitute transaction could not be delivered by the original contract date."[58]

Finally, it is to be noted that any additional damages are recoverable only where conditions of the general rule of damages has been satisfied: "Further damages are recoverable under the general rule of Article 74. This means, however, that any further damage is limited as to its foreseeability. In this case, too, it is a prerequisite that the injured party claims damages and proves the loss."[59]

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FOOTNOTES: Chapter 15

1. See Jelena Vilus in "Provisions Common to the Obligations of the Seller and the Buyer", Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lectures, Oceana (1986); p. 249. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/vilus.html>.

2. See Comment 2 on Art. 7.3.5 UPICC.

3. See Peter Schlechtriem, Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods, Manz, Vienna (1986); p. 98. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem-75.html>.

4. See Jeffrey S. Sutton in "Measuring Damages Under the United Nations Convention on the International Sale of Goods"; 50 Ohio State Law Journal, 1989, pp. 737-752. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/sutton.html>.

5. Supra. note 3, p. 97.

6. See Stoll in "Commentary on the UN Convention on the International Sale of Goods", Peter Schlechtriem ed. (Oxford 1998); p. 573. Available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-u-75.html>. ULIS, Art. 85 reads: "If the buyer has bought goods in replacement or the seller has resold goods in a reasonable manner, he may recover the difference between the contract price and the price paid for the goods bought in replacement or that obtained by the resale."

7. See the match-up, available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-d-75.html>. Art. 71 of the 1978 Draft reads: "If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction and any further damages recoverable under the provisions of article 70."

8. See Comment 1 on Art. 7.4.5 UPICC.

9. See Albert H. Kritzer in "Editorial remarks on the manner in which the UNIDROIT Principles may be used to interpret or supplement CISG Article 75". Available online at <http://www.cisg.law.pace.edu/cisg/principles/uni75.html>.

10. See Fritz Enderlein, Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods, Oceana Publication (1992); p. 303. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/enderlein.html>.

11. Supra. note 8.

12. Supra. note 10.

13. See Jacob S. Ziegel in "Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods". Available online at <http://www.cisg.law.pace.edu/cisg/text/ziegel75.html>.

14. See Secretariat Commentary on Art. 71 of the 1978 Draft, Comment 3. Available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-75.html>.

15. See Secretariat Commentary on Art. 72 of the 1978 Draft, Comment 2. Available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-76.html>.

16. See Comment and Notes to the PECL: Art. 9:506. Comment A. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp75.html>.

17. Supra. note 14, Comment 1.

18. Supra. note 1.

19. Supra. note 10.

20. Supra. note 14, Comment 4.

21. Supra. note 14, Comment 5.

22. Supra. note 14, Comment 6.

23. Supra. note 10, p. 304.

24. See Harry M. Flechtner in "Remedies Under the New International Sales Convention: The Perspective from Article 2 of the U.C.C.", 8 Journal of Law and Commerce (1988); 53-108. Available online at <http://www.cisg.law.pace.edu/cisg/text/flecht74,75,76.html>.

25. Supra. note 8.

26. Supra. note 14.

27. Supra. note 16, Comment B.

28. Supra. note 1, p. 250.

29. ULIS treats abstract assessment of damages under the current price rule as having the same standing as concrete assessment of damages under Art. 85 ULIS, so that the promisee is free to choose between those methods of assessment where the goods have a current price. "Article 84 ULIS [sets abstract damages as] the current price on the day on which the contract was avoided. [CISG Article 76 applies a different formula]. ... Article 84(2) ULIS provides that the current price to be taken into account is that prevailing the market in which the transaction took place, or, if this is inappropriate, the price in a market which serves as a reasonable substitute. The [CISG] made this rule more precise. ..." See the match-up available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-u-76.html>. Art. 84 ULIS reads: "1. In case of avoidance of the contract, where there is a current price for the goods, damages shall be equal to the difference between the price fixed by the contract and the current price on the date on which the contract is avoided. 2. In calculating the amount of damages under paragraph 1 of this Article, the current price to be taken into account shall be that prevailing in the market in which the transaction took place or, if there is no such current price or if its application is inappropriate, the price in a market which serves as a reasonable substitute, making due allowance for differences in the cost of transporting the goods."

30. See the match-up, available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-d-76.html>. Art. 72 of the 1978 Draft reads: "(1)If the contract is avoided and there is a current price for the goods, the party claiming damages may, if he has not made a purchase or resale under article 71, recover the difference between the price fixed by the contract and the current price at the time he first had the right to declare the contract avoided and any further damages recoverable under the provisions of article 70. (2)For the purposes of paragraph (1) of this article, the current price is the price prevailing at the place where delivery of the goods should have been made or, if there is no current price at that place, the price at another place which serves as a reasonable substitute, making due allowance for differences in the cost of transporting the goods."

31. See Comment 1 on Art. 7.4.6 UPICC.

32. Supra. note 10, p. 305.

33. Supra. note 15, Comment 3.

34. Supra. note 10, pp. 305-306.

35. Supra. note 24.

36. See Comment 1 on Art. 7.4.6 UPICC.

37. See Knapp, Commentary on the International Sales Law: The 1980 Vienna Sale Convention, Cesare Massimo Bianca & Michael Joachim Bonell eds. (1987) [hereinafter Bianca & Bonell]; p. 557.

38. Supra. note 3.

39. The reasons for the adoption of the double test were apparently based on the fact that some delegates felt that the test in the draft article (the time when the aggrieved party first had the right to avoid the contract) was too vague, and because others were concerned that the substitution of the time of actual avoidance might enable the aggrieved party to postpone avoidance to take advantage of a fluctuating market. On the other hand, the time of delivery was not generally suitable either because there might not have been any delivery as in the case of an anticipatory repudiation. Thus the version of art. 76 eventually adopted was regarded as an appropriate compromise. (See Jacob S. Ziegel in "Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods". Available online at <http://www.cisg.law.pace.edu/cisg/text/ziegel76.html>.)

40. Supra. note 1, pp. 250-251.

41. Supra. note 32.

42. Supra. note 3.

43. Supra. note 10, p. 306.

44. Supra. note 10, p. 307. On the other hand, an economic disadvantage may result for the buyer because of price movements from the time of the taking over of the goods to the time of avoidance. He may prevent this, however, in carrying out a cover transaction and claiming damages under Art. 75.

45. Supra. note 1, p. 251.

46. For example, Schlechtriem submits that: "It is more difficult to justify the second reference point - the 'taking over' of the goods (Article 76(1) sentence 2). In the event of a delayed or non-conforming performance, the buyer who can neither undertake nor prove a definite cover transaction under Article 75 uses the reasonable time period permitted by Article 49(2) at his own risk. In the case of Article 49(2)(b)(i), the reference point actually precedes the moment when the buyer could avoid the contract because the buyer, at that time, still did not know of the breach. The solution is thus difficult to understand." (Supra. note 3.) "Thus this can only be the buyer. To ensure the symmetry of the rights and obligations of both the seller and the buyer the Convention generally uses an abstract language. This is criticized by Hellner who considers it a serious mistake to believe that impartiality could be achieved in establishing identical rules to govern the obligations of both parties and breaches of contract by both sides." (Supra. note 44.)

47. See J. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention (1982); p. 414.

48. Supra. note 45.

49. Supra. note 44.

50. Supra. note 4.

51. Supra. note 44.

52. Supra. note 13.

53. Supra. note 15, Comment 7.

54. Supra. note 14, Comment 8; also supra. note 15, Comment 8.

55. See Comment 2 on Art. 7.4.5 UPICC; see also Comment 3 on Art. 7.4.6 UPICC.

56. Supra. note 23.

57. Supra. note 43.

58. Supra. note 14, Comment 9.

59. Supra. notes 23, 43.


CHAPTER 16. AGREED PAYMENT FOR NON-PERFORMANCE

     All legal systems appear to recognize the validity and social utility of a clause which estimates future damages, especially where proof of actual damage would be difficult. Such a clause, sometimes referred to as a "liquidated damages clause" and sometimes as a "penalty clause", can serve both the function of estimating the damages which [one party] would suffer as a cause of the breach so as to ease the problems of proof and of creating a penalty sufficiently large to reduce the likelihood that the [other party] will fail to perform.[1]

Under the CISG, Art. 46/62, which deals with specific performance (see Chapter 3) does not have the effect of making such clauses valid in those legal systems which do not otherwise recognize their validity. In other words, the CISG consciously does not deal with penalty clauses, or so-called agreed payment for non-performance or liquidated damages. The CISG does, however, not exclude relevant contractual agreements. A liquidated damages clause agreed upon by the parties should be given full effect under the Art. 6 principle of contractual freedom to derogate from the Convention.[2] Nonetheless, under Art. 4 CISG, which says that the Convention does not consider "the validity of the contract or any of its provisions", the validity of a penalty clause will likely be determined by conflicts of law rules. The vagaries of private international law will therefore decide this issue.

However, while some legal systems approve of the use of a "penalty clause" to encourage performance of the principal obligations, in other legal systems such a clause is invalid.[3] It is said that courts in many countries will enforce penalty clauses. Common law courts, however, do not enforce penalty clauses, for public policy reasons, but do allow liquidated damages, as provided in Uniform Commercial Code section 2-718.[4] "National laws vary considerably with respect to the validity of the type of clauses in question, ranging from their acceptance in the civil law countries, with or without the possibility of judicial review of particularly onerous clauses, to the outright rejection in common law systems of clauses intended specifically to operate as a deterrent against non-performance, i.e. penalty clauses."[5]

Therefore, there is considerable support for the idea that the uniform law should regulate the subject of liquidated damages, which is not however explicitly covered in the CISG. In fact, the CISG drafting Committee felt that such regulation is particularly desirable because the rules on liquidated damages vary widely, and it would be a practical contribution to international trade to bring uniformity in their application. However, the Committee again could not agree on proper language that would avoid the technical problems associated with the proposed draft. As a result, the basic principle underlying the liquidated damages provision was not rejected in the Convention. The framers of the Convention agreed that the validity and application of such clauses were to be dealt with in terms of the applicable legal system due to widely divergent approaches in the different legal systems.[6]

By contrast, in view of their frequency in international contract practice, both the UPICC and the PECL deal with the subject of liquidated damages. Art. 7.4.13 UPICC stipulates: "(1) Where the contract provides that a party who does not perform is to pay a specified sum to the aggrieved party for such non-performance, the aggrieved party is entitled to that sum irrespective of its actual harm. (2) However, notwithstanding any agreement to the contrary the specified sum may be reduced to a reasonable amount where it is grossly excessive in relation to the harm resulting from the non-performance and to the other circumstances." Art. 9:509 PECL resembles in substance Art. 7.4.13 UPICC and reads: "(1) Where the contract provides that a party who fails to perform is to pay a specified sum to the aggrieved party for such non-performance, the aggrieved party shall be awarded that sum irrespective of its actual loss. (2) However, despite any agreement to the contrary the specified sum may be reduced to a reasonable amount where it is grossly excessive in relation to the loss resulting from the non-performance and the other circumstances."

It is stated in the Official Comment on Art. 7.4.13 UPICC that, this Article gives an intentionally broad definition of agreements to pay a specified sum in case of non-performance, whether such agreements be intended to facilitate the recovery of damages (liquidated damages according to the common law) or to operate as a deterrent against non-performance (penalty clauses proper), or both.[7] Para. (1) of this article in principle acknowledges the validity of any clauses providing that a party who does not perform is to pay a specified sum to the aggrieved party for such non-performance, with the consequence that the latter is entitled to the agreed sum irrespective of the harm actually suffered by it. The non-performing party may not allege that the aggrieved party sustained less harm or none at all.[8]

However, the type of clauses dealt with in Art. 7.4.13 UPICC or PECL Art. 9:509 must be distinguished from forfeiture and other similar clauses which permit a party to withdraw from a contract either by paying a certain sum or by losing a deposit already made. On the other hand a clause according to which the aggrieved party may retain sums already paid as part of the price falls within the scope of this article.[9] Further, the obligee is not entitled to the agreed sum if the obligor is not liable for the failure of performance:[10] "Normally, the non-performance must be one for which the non-performing party is liable, since it is difficult to conceive a clause providing for the payment of an agreed sum in case of non-performance operating in a force majeure situation. Exceptionally, however, such a clause may be intended by the parties also to cover non-performance for which the non-performing party is not liable."[11]

With regard to the relationship between such agreed payment clauses and the right to performance, para. (2) of Art. 1622 Civil Code Québec (the Québec Code is seen as a "Vehicle for Modeling a Transnational Lex Mercatoria") reads: "A creditor has the right to avail himself of a penal clause instead of enforcing, in cases which admit of it, the specific performance of the obligation; but in no case may he exact both the performance and the penalty, unless the penalty has been stipulated for mere delay in the performance of the obligation."[12] However, it seems to be more persuasive that Art. 6 of UNCITRAL Uniform Rules stipulates: "(1) If the contract provides that the obligee is entitled to the agreed sum upon delay in performance, he is entitled to both performance of the obligation and the agreed sum. (2) If the contract provides that the obligee is entitled to the agreed sum upon a failure of performance other than delay, he is entitled either to performance or to the agreed sum. If, however, the agreed sum cannot reasonably be regarded as compensation for that failure of performance, the obligee is entitled to both performance of the obligation and the agreed sum."[13]

One should note, however, the sum stipulated may be reduced by the court when it is manifestly excessive. In order to prevent the possibility of abuse to which such clauses may give rise, para. (2) of Art. 7.4.13 UPICC permits the reduction of the agreed sum if it is grossly excessive "in relation to the harm resulting from the non-performance and to the other circumstances". The same paragraph makes it clear that the parties may under no circumstances exclude such a possibility of reduction. The agreed sum may only be reduced, but not entirely disregarded as would be the case were the judge, notwithstanding the agreement of the parties, to award damages corresponding to the exact amount of the harm. It may not be increased, at least under this article, where the agreed sum is lower than the harm actually sustained. It is moreover necessary that the amount agreed be "grossly excessive", i.e. that it would clearly appear to be so to any reasonable person. Regard should in particular be had to the relationship between the sum agreed and the harm actually sustained.[14] However, the agreed sum shall not be reduced by a court or arbitral tribunal unless the agreed sum is substantially disproportionate in relation to the loss that has been suffered by the obligee.[15]

Finally, it is also to be noted that reduction may be made when the principal obligation has been performed in part. In the case of partial non-performance, the amount may, unless otherwise agreed by the parties, be reduced in proportion.[16]

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FOOTNOTES: Chapter 16

1. See Secretariat Commentary on Art. 42 of the 1978 Draft [draft counterpart of CISG Art. 46], Comment 10. Available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-46.html>.

2. See Phanesh Koneru in "The International Interpretation of the UN Convention on Contracts for the International Sale of Goods: An Approach Based on General Principles". 6 Minnesota Journal of Global Trade (1997); pp. 105-152. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/koneru.html>.

3. Supra. note 1.

4. See Jeffrey S. Sutton in "Measuring Damages Under the United Nations Convention on the International Sale of Goods": 50 Ohio State Law Journal (1989). Available online at <http://www.cisg.law.pace.edu/cisg/biblio/sutton.html>.

5. See Comment 2 on Art. 7.4.13 UPICC.

6. Supra. note 2.

7. See Comment 1 on Art. 7.4.13 UPICC.

8. Supra. note 5.

9. See Comment 4 on Art. 7.4.13 UPICC.

10. Art. 5 of UNCITRAL Uniform Rules on Contract Clauses for an Agreed Sum due Upon Failure of Performance, 1986. Available online at: <http://tldb.uni-koeln.de/TLDB.html>; TLDB Document ID: 700400.

11. Supra. note 5.

12. TLDB Document ID: 601400.

13. Art. 6, supra. note 10. Nonetheless, according to Art. 9 of UNCITRAL Uniform Rules, the Parties may derogate from or vary the effect of Art. 6.

14. See Comment 3 on Art. 7.4.13 UPICC.

15. Art. 8 of UNCITRAL Uniform Rules, supra. note 10.

16. Supra. note 5.


CHAPTER 17. RECOVERY OF ATTORNEYS' FEES

17.1 General Considerations
        17.1.1 Introduction
        17.1.2 Recoverability under "Loser-pays" Principle
        17.1.3 Excluded by "American Rule"
17.2 CISG Decisions Concerning Attorneys' Fees
17.3 Problematic Recovery under Art. 74 CISG

     Given the money that can be expended by the parties in a lawsuit, the allocation of costs in most domestic courts and international commercial arbitrations is not an ancillary aspect of the proceeding, but rather an important, and often neglected, part of the legal process.[1]

17.1 GENERAL CONSIDERATIONS

17.1.1 Introduction

As discussed previously, CISG Art. 74 sets forth the general principle measuring liabilities for non-performance. CISG damages are designed to compensate all kinds of loss, including loss of profit, suffered as a "consequence of the breach". In this way CISG seeks to compensate the injured party for both expectation damages and reliance expenditures. It then turns to the question: should CISG Art. 74 be interpreted to cover attorneys' fees in international commercial litigation governed by CISG?

Clearly, Art. 74 does not specifically name attorneys' fees as damages; like the CISG, neither of the two widely accepted principles, the UPICC or the PECL, explicitly states that attorneys' fees should be regarded as damages. Scholarly writings about the CISG have featured an increasing amount of debate about whether attorneys' fees may fall under Art. 74 CISG on damages. And as to be shown below, it is an issue of particular importance to parties who sue or are sued in, e.g. the United States where so-called American Rule prevails, under contracts subject to the CISG.

The multifold progress in international communication techniques has made our globe smaller and shortened distances. All the more we are astonished if we discover, even within communities of equal economic standing, concepts and ideas that are important to one but almost unknown to the other community.[2] Recovery of attorneys' fees is such an issue. Whereas such recovery is unknown to most lawyers trained in, e.g. American, where so-called American Rule prevails; in much of the rest of the world, including most European jurisdictions, where the "loser-pays" principle apparently dominates,[3] the general rule is that a party who prevails in litigation can recover some or all of the costs it incurred for legal representation (as well as other litigation costs) from the losing party -- a "loser pays" or "costs follow the events" approach.[4]

17.1.2 Recoverability under "Loser-pays" Principle

Some decisions, originating mostly (but not exclusively) in German fora, appear to award a prevailing litigant compensation for attorneys' fees incurred in the course of the dispute. In this context, section 91 of the German Code of Civil Procedure (ZPO) is lex specialis to claims for damages for late performance in the form of costs of litigation.[5] However, these are particularly the costs for the pursuit of one's rights outside the courts. "[S]uch costs were beyond the scope of the recovery afforded by the domestic 'loser pays' rule in Germany, and pre-litigation attorney expenses would be characterized as substantive damages under German national sales law."[6]

ZPO section 91 contains a general principle: The restriction of the reimbursement to costs necessary for the pursuit or defense of one's rights in ZPO section 91(1) is an expression of the obligee's duty to mitigate the loss, which does not allow for avoidable costs to be passed on to the other party. This is why in addition to the fees of its German lawyer, attorneys' fees in the plaintiff's home country must be reimbursed, if and insofar as they were necessary. If a fee was agreed upon with a foreign attorney, e.g., a contingent fee, it will be necessary to thoroughly investigate, and as a plaintiff to prove, whether and why the agreed upon fee was necessary for the pursuit of the claim. If it was not necessary, it cannot be claimed as part of the damages for late performance.[7]

In short, it is found that even in such loser-pays jurisdictions as German, it is procedural rules that determine that all attorney's fees are compensated and they further limit the attorneys' fees to those accumulated during the proceedings.

17.1.3 Excluded by "American Rule"

In contrast to so-called "loser pays" approach as discussed above, "the firmly-established 'American rule' on recovery of attorneys' fees is that, in the absence of a statutory or contractual provision to the contrary, each party to a dispute must bear his or her own attorneys' fees."[8] The general rule in the United States is that each party to a lawsuit bears his or her own expenses of litigation, including the costs of attorneys, no matter who prevails in the dispute. The rule, whose origins are somewhat unclear, was adopted by the United States Supreme Court in 1796 and has repeatedly (and recently) been reaffirmed by the same court. Indeed, this method of dealing with attorneys' fees is known (at least in the United States) as the "American rule".[9]

It is submitted that, "this American rule -- which in breach of contract actions works as a 'qualification' upon the general 'expectation' measure of damages -- applies in all types of cases (in all U.S. State and Federal courts), it is best understood as a general rule of procedure subject to lex fori."[10] However, such a general standard is established only as regards the absence of contractual, statutory or rule authorization. "There are several exceptions to the American rule that parties to litigation bear their own attorneys' fees. Under U.S. law, a successful litigant can recover its attorneys' fees from the losing party if that result is provided either by statute or by an enforceable contract provision between the parties. [...] This exception has been narrowly construed. In particular, courts have generally required that a statute explicitly and specifically authorize recovery of attorneys' fees before it will trigger the statutory exception to the American rule."[11]

Then the question arises: Does the damage provisions of the CISG, when invoked in international commercial litigation, trigger the statutory exception to the American rule? To resolve this issue, I will firstly take a look at some CISG decisions on the recovery of attorneys' fees.

17.2 CISG DECISIONS CONCERNING ATTORNEYS' FEES

Given that rules concerning the reimbursement of costs for the winning party vary worldwide, of interest here is the losing party's duty to bear the costs and its support by CISG Art. 74, i.e., the decision to generally qualify the winning party's attorneys' fees as part of the consequential damages awarded according to CISG Art. 74. In this respect, I will review briefly some decisions, including the well-known Zapata case, holding that damages for a variety of attorney costs incurred by an aggrieved party are recoverable under Art. 74 of the CISG.

On the one hand, even in German, where the "loser-pays" principle apparently dominates, several decisions, appearing to award a prevailing litigant compensation for attorneys' fees incurred in the course of the dispute, have done so not on the basis of a "loser-pays" principle in the tribunal's own domestic law, but rather on the authority of the damages provisions of the CISG itself.[12] On the other hand, several other Contracting Jurisdictions' decisions appear to award CISG damages to cover the prevailing party's attorneys' fees incurred during the course of the litigation. Of the greatest attention here, is the recent decision issued by the U.S. District Court, Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., Inc., etc.,[13] which appears at first sight to abandon the "American Rule" in international sales law cases and carves an exception that is generally in accordance with international practice. In Zapata, the court discusses, among other things, whether the winning party may have those attorneys' fees, which were necessarily incurred in seeking relief from the court, reimbursed as part of the damages. The question is answered in the affirmative. The District Court held that Art. 74 CISG provides for the recovery of counsel's fees incurred by a successful litigant in a breach of contract governed by the CISG, "so that [seller] may be made whole for the damages and expenses it has been forced to bear due to [buyer's] misconduct". However, the Circuit Court of Appeals reversed and remanded the District Court ruling on Zapata. The Appellate Court did not award the plaintiff attorney's fees as damages under Art. 74 of the CISG.  This court stated: "... it seems apparent that [loss] does not include attorneys' fees incurred in the litigation of a suit for breach of contract, though certain pre-litigation expenditures ... would probably be covered as incidental damages."[14]

Clearly, it is of utmost importance to the viability of the CISG that national concepts and labels do not hamper the uniformity that is critical for the functioning of the CISG and the certainty that is crucial to the functioning of international trade.[15] The CISG is a multi-party international convention that creates treaty obligations on the part of Contracting Parties, including the obligation under Art. 7(1) to interpret the Convention in a fashion that reflects its "international character" and that promotes "uniformity in its application". In this respect, the court in Zapata established the parameters for the proper approach to the Convention's interpretation by noting the explicit international character of the CISG and the mandate for its uniform application, as directed by Art. 7(1) CISG. However, it is understandable that, beyond taken into account with considerable weight in a comparative and critical manner, such an interpretation as in Zapata or more generally in loser-pays jurisdictions, e.g. German, that attorneys' fees fall under Art. 74, cannot be binding on a court of another country in all circumstances, even bearing in mind the duty placed on them by the CISG to give due regard to the international character of the Convention. "The CISG did not create a de facto international court system in which foreign decisions must be treated as binding precedent as a matter of stare decisis. Courts remain free to disagree with positions taken by sister-tribunals from beyond their national borders. Article 7(1) itself does not require that those interpreting the CISG achieve strict uniformity in its application, but only that they have 'regard' for uniformity along with several other values -- the Convention's international character and the promotion of good faith in international trade."[16]

In fact, it has been found that those decisions issued by German courts "make a similar distinction between pre-litigation lawyer costs, which (the cases hold) are recoverable as damages under CISG Article 74, and attorneys' fees for conducting the litigation itself." Flechtner treats the issue of a prevailing litigant's right to recover attorney fees as a procedural question beyond the scope of the CISG, and subject to the rules of the forum.[17] It is even submitted that, although the court rightfully ruled that the buyer to pay the seller's costs, Zapata should not be used as precedent for similar propositions in international sales law cases in U.S. courts.[18] Briefly speaking, although it is to be noted that "[i]n international commercial arbitration it is also very common that a tribunal will order the loser to pay the 'successful' party a large percent of the winner's costs, if not all of them";[19] it appears that there is little evidence that the cases granting CISG damages for attorneys' fees represent a genuinely international consensus.

17.3 PROBLEMATIC RECOVERY UNDER ART. 74 CISG

As discussed previously, no specific rules have been set forth in Art. 74 describing the appropriate method of determining "the loss ... suffered ... as a consequence of the breach". Clearly, Art. 74 does not specifically name attorneys' fees as damages anymore than it names other expenses incurred or losses experienced; on the other, it does not rule out attorneys' fees as damages either. In fact, the Appellate Court in Zapata concluded that the CISG, by its wording or its "background", as the court called it, does not suggest that loss was intended to include attorneys' fees but that the CISG did not, by its wording, exclude attorneys' fees either.[20] It seems that the general language of Art. 74 ("[d]amages ... consist of a sum equal to the loss . . .suffered by the other party as a consequence of the breach") is broad enough to encompass damages for attorneys' fees.[21]

Clearly, if failure to construe the CISG damage provisions as encompassing compensation for attorneys' fees meant that a successful litigant could not recover such expenses from the losing party in transactions governed by the CISG, it would certainly present a very difficult issue. Because much of the world follows a loser-pays principle. On the other hand, however, there is nothing in the travaux préparatoires of the Convention to suggest that these countries contemplated changing to the American rule for attorneys' fees in litigation involving international sales. Therefore, a tough task remains: how should such pre-litigation attorneys' fees -- costs of the type covered by the loser-pays jurisdictions which are generally not compensable under the traditional American rule -- be subjected to foreseeability as required by Art. 74?

Generally, full compensation rule seeks to place the injured party in the same position as he would have been had the debtor complied with the terms of his contract, and thus seems broad enough to encompass attorneys' fees as consequential damages. However, it is only as regards such losses as meeting the requirements contained in the full compensation rule. The most problematic aspect of the issue at hand, returning to general considerations, may be the imbalance and uncertainty that allowing attorneys' fees under Art. 74 would create. The standards for recovering attorney costs under the CISG, likely differ from the standards imposed by the loser-pays rules of the various Contracting States: recovery of damages under the CISG is limited by the foreseeability requirement in Art. 74 and the mitigation principle in Art. 77, whereas recovery of attorneys' fees under domestic loser-pays rules undoubtedly are subject to different limitations and principles. Then the question arises on how to subject pre-litigation attorneys' fees to foreseeability as required by Art. 74 in so-called American rule jurisdictions, where such costs are generally not compensable nonetheless covered by the loser-pays jurisdictions.

While in loser-pays jurisdictions, according to its cost shifting rules, the losing party would pay regardless of a breach and the prevailing party would be under no obligation to establish foreseeability as required by Art. 74 or to mitigate the loss (attorneys' fees) as required by Art. 77. Even in such jurisdictions, it is unclear on what basis the distinction between pre-and post-litigation attorneys' fees is made. Further, if no breach of contract or foreseeability were established concerning a CISG claim, an additional regard needs to be had to returning to the jurisdiction's cost shifting rules or other means in order to resolve the disputes.

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FOOTNOTES: Chapter 17

1. See Vikki M. Rogers, Frankfurt in "Attorney's Fees: Is the 'American Rule' Applicable to International Sales Law Cases?": NY State Bar Association New York International Chapter News, Vol. 7 No.1 (Spring 2002); p. 21. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/rogers.html>.

2. See Volken, Paul in "Legal Opinions in International Transactions": Sarcevic / Volken eds., International Contracts and Payments, London (1991); p. 125. Available online at <http://tldb.uni-koeln.de/TLDB.html>; TLDB Document ID: 117600.

3. Although the "loser-pays" principle apparently dominates the civil law jurisdictions of continental Europe, it is worth noting that the two different approaches to the attorney-fees issue do not represent a common law/civil law split: England, the homeland of the common law, has a loser-pays system. Indeed, in the United States the loser-pays approach is usually called "the English rule". (See Harry M. Flechtner, infra. note 8.)

4. See John Yukio Gotanda in "Awarding Costs and Attorneys' Fees in International Commercial Arbitrations", 21 Mich. J. Int'al L. (1999); p. 1, 10 n. 40.

5. See Staudinger/Löwisch 286 No. 53, 13th ed. (1995). Cf. Peter Schlechtriem, infra. note 7.

6. See Jarno Vanto in "Attorneys' fees as damages in international commercial litigation". Available online at <http://www.cisg.law.pace.edu/cisg/biblio/vanto1.html>.

7. See Peter Schlechtriem in "Case comment: Attorneys' Fees as Part of Recoverable Damages", 14 Pace International Law Review (Spring 2002). Available online at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem4.html>.

8. See Harry M. Flechtner in "Recovering Attorneys' Fees as Damages under the U.N. Sales Convention: A Case Study on the New International Commercial Practice and the Role of Foreign Case Law in CISG Jurisprudence, with a Post-Script on Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co.", 22 Northwestern Journal of International Law & Business (2002). Available online at <http://www.cisg.law.pace.edu/cisg/biblio/flechtner4.html>.

9. Ibid. Flechtner also states: "The United States, however, is not alone in requiring that each party generally bear its own litigation costs. Japan has such a system for contract cases. Thus the two largest economies in the world have adopted this approach for domestic sales transactions."

10. See Joseph Lookofsky in "Case note: Zapata Hermanos v. Hearthside Baking": 6 Vindobona Journal of International Commercial Law and Arbitration (2002); pp. 27-29. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky5.html>.

11. See Harry M. Flechtner, supra. note 8.

12. These decisions include: Decision of April 28, 1993, Landgericht Krefeld (Germany), No. 110 210/92, affirmed in part and reversed in part in Decision of January 14, 1994, Oberlandesgericht Düsseldorf (Germany), No. 17 U 146/93, English Abstracts appearing in CLOUT, available online at <http://cisgw3.law.pace.edu/cases/940114g1.html>; Decision of May 12, 1995, Amtsgericht [Lower Court] Alsfeld, 12 May 1995, 31 C 534/94, case presentation available at <http://cisgw3.law.pace.edu/cases/950512g1.html>; Decision of March 21, 1996, Schiedsgericht der Handelskammer Hamburg (Germany), abstracted in English as part of CLOUT Abstract no. 166, available at <http://cisgw3.law.pace.edu/cases/960621g1.html>; Decision of December 19, 1997, Handelsgericht des Kantons Aargau (Switzerland), No. OR.97.00056, English abstract available in CLOUT (abstract no. 254), available online at <http://cisgw3.law.pace.edu/cases/971219s1.html>; Amtsgericht [Lower Court] Viechtach, 11 April 2002, 1 C 419/01, case presentation and English translation available at <http://cisgw3.law.pace.edu/cases/020411g1.html>.

13. Zapata Hermanos Sucesores v. Hearthside Baking Co., U.S. District Court, 28 August 2001. Available online at <http://cisgw3.law.pace.edu/cases/010828u1.html>.

14. See Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co. Inc., etc. Nos. 01-3402, 02-1867,02-1915, The United States Court of Appeals for the Seventh Circuit, November 19, 2002. Available online at <http://cisgw3.law.pace.edu/cases/021119u1.html>.

15. See Jarno Vanto, supra. note 6.

16. See Harry M. Flechtner, supra. note 8.

17. Ibid. On the contrary, another commentator states: "To regard the award of such fees as a procedural issue to be settled by reference to either the lex fori or the otherwise applicable domestic law instead, goes against the plain meaning of the Convention's language and intent, as well as the available international jurisprudence." (See John Felemegas in "The award of counsel's fees under Article 74 CISG, in Zapata Hermanos Sucesores v. Hearthside Baking Co. (2001)", 6 Vindobona Journal of International Commercial Law and Arbitration (2002); p. 39. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/felemegas1.html>.)

18. See Joseph Lookofsky, supra. note 10. The decision, however, deserves the greatest attention. "The case has garnered major attention based on the amount of comments on it. The reason possibly is because the case emanates from the United States, a jurisdiction which so far does not have a large CISG jurisprudence but whose rulings resonate throughout the commercial community." (See Jarno Vanto, supra. note 6.)

19. Supra. note 1.

20. Supra. note 14.

21. Even though, the court or arbitral tribunal must calculate that loss in the manner that is best suited to the circumstances. This means that if attorneys' fees are to be allowed under Art. 74, this happens through submission of the facts of the case under the norm in which the facts assume their meaning, i.e., interpretation. (See Jarno Vanto, supra. note 6.)


Pace Law School Institute of International Commercial Law - Last updated October 27, 2003
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