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Published in J. Herbots editor / R. Blanpain general editor, International Encyclopaedia of Laws - Contracts, Suppl. 29 (December 2000) 1-192. Reproduced with permission of the publisher Kluwer Law International, The Hague.

[For more current case annotated texts by this author, see Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed. (2003) and Lookofsky, Understanding the CISG in the USA, 2d ed. (2004).]

excerpt from

The 1980 United Nations Convention on Contracts
for the International Sale of Goods

Joseph Lookofsky

Article 77
Mitigation: No Recovery for Avoidable Loss

294. In domestic sales law and under the CISG: a plaintiff cannot recover for those harms that he could have avoided by reasonable action. Within the Convention context, Article 77 applies:

'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.'

There is no Convention 'duty' to mitigate as such. However, a party who fails to take reasonable measures to mitigate loss cannot recover for the loss which could have been mitigated, and the principle should apply even as regards a prospective failure to perform: once a party has reason to know that performance by the other party will not be forthcoming, he is expected to take such affirmative steps as are [page 157] appropriate in the circumstances to avoid loss.[1] And as in domestic law, so under the CISG: the avoidability principle determines the point in time at which we calculate the contract-cover and contract-market price differentials.[2]

Also losses otherwise recoverable under the more general Article 74 rule are limited by the mitigation principle. If, for example, the seller delays delivery of goods intended to serve as a key ingredient or tool in buyer's production, and the buyer makes no reasonable efforts to secure a substitute, any profits lost will not have been suffered solely 'in consequence' of seller's breach. Of course, the extent of avoidability will depend on the buyer's ingenuity, experience, and financial resources (ability to obtain credit quickly, etc.), and what is 'reasonable' mitigation will depend on the court's evaluation of the concrete case.[3]

1. Accord: Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft Wien (Vienna), Austria, arbitral award of 15 June 1994, No. SCH-4366, reported [at <http://cisgw3.law.pace.edu/cases/940615a4.html> and] in UNILEX (CISG seller had right - and presumably also duty - to make cover sale under Art. 77).
2. See supra No. 291 and 293. See also, e.g. the decision of OLG Hamburg (Germany), 28 February 1997, reported [at <http://cisgw3.law.pace.edu/cases/970228g1.html> and] in UNILEX (buyer's substitute purchase at higher price consistent with obligation to mitigate under Art. 77).
3. See, e.g., the decision of Amtsgericht München (Germany), 23 June 1995, reported [at <http://cisgw3.law.pace.edu/cases/950623g1.html> and] in UNILEX (chemical for production of pharmaceuticals; when German buyer's customers complained of non-conformity, Italian seller agreed to cure in Italy; cure delayed, buyer secured more costly cure in Germany; buyer, who had not previously infomied seller of customer's urgent need, had not breached its 'duty to mitigate'). Compare the decision of the German Supreme Court (BGH) of 25 June 1997, NJW 1997, 3311-3313, also reported [at <http://cisgw3.law.pace.edu/cases/970625g2.html> and] in UNILEX (citing Articles 74 and 77 in denying a CISG buyer the right to recover expenses incurred in adapting its equipment to process defective metal, as such expenses unreasonable in relation to purchase price).

295. Sometimes, a given buyer's loss may seem (at least partIy) caused by her own pre-breach, negligent act.[l] And although CISG Article 75 seems designed mainly to post-breach mitigation, the Convention does not bar recognition of the pre-breach (prevention) aspect of avoidability.[2] For example, where the harm caused by seller's delayed delivery of a simple standard part is aggravated by the fact that buyer keeps no such spares on hand, such a failure to take precautionary measures, if judged unreasonable, will prevent the recovery of compensation for avoidable loss.

1. For a discussion comparing American and Scandinavian law on point, see Lookofsky, J., Consequential Damages in Comparative Context (1989) at pp. 166 ff.
2. See Article 74 (supra No. 289) re. the general principle of compensation for loss 'suffered ... as a consequence of breach.' Accord: Stoll in Schlechtriem. Commentary (1998) at 587 (obligee must take reasonable measures to counteract potentially harmful consequences of impending or threatened breach). [page 158]

Pace Law School Institute of International Commercial Law - Last updated April 5, 2005
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