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Reproduced with permission of 71 Rabels Zeitschrift für ausländisches und internationales Privatrecht (January 2007) 35-51

Twenty-Five Years On -- The United Kingdom,
Damages and the Vienna Sales Convention

By Alastair Mullis, Norwich

  1. Why the Convention Has Not Been Ratified by the United Kingdom
  2. The Remedy of Damages
    1. The problem of the meaning of "loss" in Article 74
         a)    Future losses
         b)    Lawyers fees
    2. Foreseeability
    3. Proof of loss
  3. Conclusion

It is a great honour to be asked to contribute to this Colloquium reflecting on the Vienna Convention on Contracts for the International Sale of Goods [1] (hereinafter "CISG" or "the Convention") twenty five years after its 'birth'.[2] The main purpose of my paper is to offer some thoughts as to the 'past, present and future' of the Convention's provisions relating to the remedy of damages. Before I do so, however, I have been asked, as a representative of one of the 'hold-out' states, to say a few words about the position of the United Kingdom (U.K.) with regard to the Convention. [page 35]

I. Why the Convention Has Not Been Ratified by the United Kingdom

It hardly seems worth stating that CISG has been one of the more successful international instruments produced. Few other commercial law conventions have attracted as many adherents,[3] the academic literature and case law is extensive,[4] and it has had a considerable impact internationally on the reform of sales and contract laws.[5] As is so often the case, the U.K. played a significant role in the Convention's drafting and yet, 25 years on, has still not ratified it. Why is that? Several reasons can be offered, some of which are perhaps more compelling than others.

First, a good deal of international commercial litigation, particularly involving commodity sales contracts, occurs in London and according to English law. This inevitably brings large amounts of money into the U.K. and there is therefore a perhaps justified wariness of adopting an instrument that might change that.[6] Related to this is the idea that English law is better suited to the resolution of international commercial problems than anything that could be devised at an international level.[7] While I believe that there is some justification for this claim -- particularly in relation to the sale of commodities -- and that there are merits to the inherent pragmatism of English law in this [page 36] field, the fact is that most of our commercial statutes date from the nineteenth and early twentieth century.[8] Remarkably well drafted as those statutes are, their age, if nothing else, should give us cause to contemplate whether such legislation is still better suited to the needs of modern international commerce than more recent efforts.

Secondly, as Francis Reynolds has pointed out, international sales to a common lawyer do not bring to mind "disputes concerning consignments of shoes sent from Italy to England or Germany, nor sales of tractors by salesmen from developed countries to Nusquamian peasants nor whether a contract involving supply of heavy plant for construction is or is not a contract of sale."[9] When an English lawyer thinks of international sales he thinks of documentary sales of commodities, carried by sea and sold on c.i.f. (cost, insurance, freight) or f.o.b. (free on board) terms. Indeed, it is primarily in relation to these types of contract that the English law of international trade has been developed. Trade in commodities involves different considerations and raises fundamentally different concerns for the contracting parties than does trade in machinery and other capital goods. Certainty is at a premium and strict rights of termination are the order of the day.[10] Certainty, it is thought, is what traders and business people want and English law gives them that certainty. The Convention's remedial structure, with its emphasis on contract performance and avoidance as a last resort, does not sit easily with this.[11]

English lawyers' concern about this matter is well illustrated by the decision of the Bundesgerichtshof (BGH) in the Cobalt Sulphide case,[12] which is discussed at greater length in the paper by Professor Huber. In that case, not only were the goods defective in that they were of South African and not, as the contract required, of British origin; the documents were also defective because the certificate of origin falsely stated an EEC origin, and only one copy of the certificate of quality was tendered (four were required). It is difficult for me, as someone who does not read German, to be sure that I have fully understood [page 37] the reasoning of the Bundesgerichtshof, but it seems inconceivable that an English court would have reached the same decision. First, even if the goods could have been marketed under a different description in Germany, that would have been a matter of complete indifference to an English court. The buyer asked for British origin goods and received South African. He would have been entitled to reject them even if it could have been shown that he could still make use of them.[13]

Secondly, so far as the documents were concerned, the Court concluded that there had been no fundamental breach because the buyer had not been essentially deprived of what he was entitled to expect under the contract. The buyer could photocopy the certificate of quality himself and, as the certificates of origin might be irrelevant for further sale or processing of the goods, the buyer's interest in the contract had not ceased to exist. Again, to English eyes, this decision appears strange. In English law, a buyer is entitled to documents that are perfect:[14] he is not, as has been said, obliged to accept 'a litigation', nor is he obliged to accept documents that might be acceptable. Yet the decision of the Bundesgerichtshof would appear to require him to do so.[15]

While the need for certainty can be over-emphasised and, as Professor Schlechtriem [16] and others [17] have shown, the Convention can be made to work for documentary sales, the fact remains that the perception exists that the philosophy underlying the Convention is wholly inconsistent with that which underlies the English law of international sales.[18] This perception, if not entirely accurate, will take time to change.

Finally, and today this is probably the real reason for the U.K.'s failure to ratify, there has not been sufficient political, or industry, interest to get the Convention onto the statute books. The Convention is very much 'lawyer's law' and it is therefore not likely to be high on the agenda of a government [page 38] seemingly fixated with the problems of anti-social behaviour and fox-hunting.[19]

Yet, in spite of what has been said so far, I sense that the U.K. is probably closer today than it ever has been to ratifying the Convention. The Department of Trade and Industry announced in 1999 that it was commited to ratification [20] and, as a result of further consultation carried out in 2004, there was an announcement by a government minister in February 2005 that there would be yet another consultation to examine the various ways in which ratification might be effected.[21] While there is no immediate prospect of ratification, I would be surprised if the U. K. did not ratify in the next year to eighteen months.

Having said something about the position of the U.K. in respect to ratification, I turn now to the main subject of my paper, namely, damages under CISG.

II. The Remedy of Damages

The remedy of damages is but one of the remedies provided by the Convention and the rules relating to their recovery can be found in Arts. 74 to 78. By virtue of these rules, the claimant can recover damages to compensate for all foreseeable losses [22] caused by the defendant's breach of contract, provided that he can prove such losses with a sufficient degree of certainty and he has properly mitigated his damage.[23] Put simply, the Convention contains a general rule allowing recovery of compensatory damages for losses suffered, which it then limits by reference to rules of proof, causation, foreseeability and mitigation. [page 39]

Perhaps unsurprisingly, there has been a substantial number of decided cases (and much academic writing) interpreting the damages provisions.[24] Instead of attempting a complete survey of the law relating to damages, a task already admirably performed by several commentators,[25] I propose instead to look at a few issues which I think are intrinsically interesting, but which at the same time are illustrative of four wider themes that I wish to highlight. These are: first, the persistence (perhaps waning?) of resort by national courts (and occasionally commentators) to domestic rules and principles when interpreting the Convention; secondly, and this theme operates in the opposite direction to the first, too ready a willingness to treat matters not specifically mentioned in CISG as nevertheless governed by it, and thereby risking upsetting the political balance on which the Convention is based and at the same time damaging wider efforts towards harmonisation; thirdly, the potential of the Principles of International Commercial Contracts [26] to assist in a positive way in the interpretation of CISG; and, finally, the need for academics and courts to continue exploring matters that could properly fall within the ambit of the Convention, thereby contributing to the harmonisation agenda.

In order to illustrate these themes, I propose to look at three aspects of the regulation of damages that have caused controversy in the literature and case law. The first is the meaning of the word "loss" in Art. 74, the second is the problem of foreseeability, and the third, the problem of proof of loss. [page 40]

1. The problem of the meaning of "loss" in Article 74

While Art. 74 provides that the damages recoverable consist of a sum equal to the "loss, including loss of profit, suffered by the other party as a consequence of the breach," "loss" is nowhere defined. Thus, it is perhaps unsurprising that there has been some disagreement as to what constitutes loss for the purposes of CISG.[27] While there is wide acceptance that Art. 74 is intended to express a principle of full compensation [28] and that both expectation and reliance loss are therefore recoverable, difficulty has arisen in respect of several further heads of damage. I will examine two of these: future losses and lawyers' costs.

a) Future losses

Breach of a contract of sale will in many cases cause loss that may persist for some time. By way of example, if A designs and builds for B a machine intended to produce 100 widgets per hour and the machine only produces 50 widgets per hour, there is likely to be a significant loss of profit to B that will persist until he replaces the machine, which may of course not be for some time. The majority view in respect of such losses is that they are recoverable.[29] However, there are at least three decisions of arbitral tribunals, two of which were Russian, that deny such claims.[30] Two reasons appear to have been given [page 41] by the tribunals for these decisions. Of these, one was consistent with the Convention, and sufficient to justify the decisions, while the other was not.

The acceptable reason was that the claimants had failed to prove the future losses with the required degree of certainty.[31] While there may be disagreement as to the required standard of proof and whether or not future loss falls within the Convention's scope, it seems undeniable that a claim will fail if its extent is not established with sufficient certainty.

Less acceptable, however, was the Russian arbitrators' recourse to their own Civil Code in interpreting the Convention. In considering the meaning of "suffered", the arbitrators considered Art. 15 of their Code, which specifies that recoverable losses include those which have been incurred, "or will have to be incurred."[32] On this basis, they concluded that the absence of an express reference to "future losses " in Art. 74 implied that such losses were not recoverable. Such an approach is clearly impermissible and wholly ignores the instruction in Art. 7(1) to have regard, in the interpretation of the Convention, to the international character of the Convention and the need for uniformity.[33] Moreover, such a reading of Art. 74 is inconsistent with the plain language of the provision which allows for recovery of loss of profits without limitation.

As an example of an issue in respect of which a tribunal too readily had recourse to national legal rules to interpret the Convention, this is not perhaps of great importance. Nevertheless, I think it is illustrative of a wider tendency that must constantly be watched. There are still too many examples of cases in which national courts and tribunals have failed to afford the international nature of the Convention sufficient weight. Some courts and tribunals have been better than others in this respect (e.g., German courts have probably [page 42] been better than most, which may have a considerable amount to do with the fact that few decisions are taken without reference to Professor Schlechtriem's book).[34] However, the fact remains that a national trend is often evident.

b) Lawyers' fees

A particularly vexed question of considerable practical importance arose from the decision of the American courts in Zapata Hermanos v. Hearthside Baking.[35] In this case, the Court of first instance awarded litigation expenses, including attorneys' fees, as part of damages.[36] Although the 'American rule' normally requires each litigant to bear its own legal expenses, the Court stated that this rule did not apply when there was a law that provided otherwise. The Court held that Art. 74 CISG was such a law. Under that article, the plaintiff is entitled to recover a sum equal to its loss, including losses suffered as a consequence of the defendant's breach. The defendant could foresee that there might be litigation and legal expenses if it failed to pay sums admittedly due. The result, the Court stressed, is consistent with the almost universal rule that a successful party may recover its legal expenses and, therefore, supported CISG policies of promoting uniformity and certainty. On appeal, the U.S. Court of Appeals for the Seventh Circuit reversed the decision on this issue.[37] The Court concluded that attorneys' fees are not covered by Art. 74, and that this is a procedural, not substantive, matter falling outside the scope of CISG which must therefore be dealt with under the domestic law of the forum.[38] [page 43]

Much has been written on this subject and I hesitate to add to the already voluminous literature.[39] Nevertheless, I want to offer a few thoughts on the matter, by way of introduction to the more general issue that this case raises. There is, I think, much in what the District Court said. It is certainly plausible to argue that legal expenses incurred by a party, who succeeds in proving that the other side has breached a CISG-governed sales contract, are recoverable under Art. 74 because they constitute "a loss ... suffered ... as a consequence of the breach", and such a loss was foreseeable at the time the contract was formed. Moreover, once it is accepted that some lawyers fees, such as those incurred in pre-litigation, are recoverable, it seems difficult as a matter of principle to exclude others.

That said, it is my view that the Court of Appeals was correct in concluding that lawyer's fees should not be recoverable. First, the matter of lawyer's fees never arose during the drafting and negotiation of the treaty. This strongly suggests that those involved in the drafting did not expect or intend that CISG would change such a significant aspect of the litigation process.[40] While some 'unexpected' effects on national law may result from ratification of an international treaty, it is surely going too far to suggest that such a fundamental change to civil procedure could have happened by omission.

Secondly, bringing lawyers' fees within the Convention will not, I think, do anything to further harmonisation and will also lead to a considerable amount of unnecessary, and expensive, litigation about what is, and what is not, recoverable. If lawyers' fees are treated as a matter governed by the Convention, regard will have to be had, under Art. 7(2), to the general principles [page 44] of the Convention in order to decide which costs are recoverable. In this respect, it has been suggested that general principles such as full compensation, foreseeability, mitigation and reasonableness could be used to fill the gap.[41] Use of such vague principles in an area such as lawyers' fees would be a recipe for difference rather than harmony. The fact is that the way in which legal practice is carried on around the world is very different. Thus, for example, the way cases are prepared and argued in the civil and the common law worlds differs substantially. Should the fees awarded by courts reflect this or should they be measured by reference to some imaginary 'international' practice standard? The result of treating lawyers' fees as falling within the Convention would inevitably increase the costs of litigation, as courts would have to attempt to rewrite the rules relating to the recovery of costs in international sales litigation in accordance with vague general principles of the Convention. It is hard to see how the effort would be worth it.

One final point that I find compelling against treating attorney fees as recoverable under Art. 74 is that it would allow successful claimants to recover such fees, but would deny any such recovery to successful defendants.[42] It has been suggested that this might be avoided by finding that a claimant who brings an unsuccessful action against the other party breaches a "duty of loyalty to the contract", thus permitting the defendant to recover attorney fees as damages for such 'breach.'[43] Such a solution in my view derives no support from the text of the Convention or the travaux préparatoires and merely demonstrates how completely unsuitable the rules of the Convention are for regulating the question of lawyers' fees.

The proper solution to this issue, I would suggest, is to treat the recovery of lawyers' fees as a matter falling outside the ambit of the Convention. Even as an advocate of the harmonisation of international commercial law, I can see nothing to be gained, and indeed much to be lost, by treating lawyers' fees as recoverable damages under Art. 74. If one wants a good example of a matter that should not be shoe-horned into the Convention, this is surely it. The award of costs in litigation is an important issue of national public policy and is a matter on which there are sharp differences internationally. That it was not discussed at Vienna is not surprising, because it is highly unlikely that agreement would have been reached. For some commentators to say, as they have [page 45] done, that the failure to deal with the issue does not mean that it is not governed by the Convention is to seek to enforce a uniformity ex post facto that could never have been achieved at the time, and thereby to risk disturbing the delicate political balance achieved at Vienna. It is true that rules of law and practice change over time, and if the wide diversity throughout the international community in this regard were to narrow there would be a strong argument for recognising this. However, as yet there is no evidence of international consensus on this issue and attempting to enforce one through a misreading of the Convention is unlikely to achieve any useful uniformity.

2. Foreseeability [44]

As I explained earlier, the Convention contains a general rule allowing recovery of compensatory damages for losses suffered which it then limits by reference to rules of proof, causation, foreseeability and mitigation. While proof of loss will be addressed below, I will now briefly consider the role of foreseeability, which does not, of course, have a direct counterpart in German law.

The foreseeability rule is set out in the second sentence of Art. 74 which provides that the damages recoverable "may not exceed the loss which the party 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." The rule thus incorporates both factual and normative elements.[45] Not only will the party in breach be liable for any loss which he actually foresaw as a possible consequence of his breach, but he will also be liable for consequences which he ought, as a reasonable person, to have foreseen. The practical effect of this provision is thus two-fold. First, it imposes liability on the defendant for what one might call the usual, possible consequences of breach, that is to say: the consequences of which the party in breach ought to have been aware given the nature and purpose of the contract he had entered into, the business or trade in which the parties operated, and any other matter which ought to have been known by a reasonable person in his position. Secondly, it has the effect of imposing [page 46] liability for 'unusual' risks where the party in breach was aware of those risks, usually no doubt because these were drawn to his attention by the other party.

Notwithstanding the open-textured language of this provision, or perhaps even because of it, the courts do not appear to have had a great deal of difficulty with it. While one may take issue, as an English lawyer, with some rather 'pro-claimant' decisions,[46] such a tendency is not entirely surprising given the fact that the wording of the Convention is undoubtedly more favourable to claimants than is English law.[47] This is again an example, if example be needed, of the danger of having recourse to one's own legal system to understand rules and principles articulated in CISG. In any event, this is perhaps, more than most, an issue in which the courts are in the best position to make a judgment about what is, and is not, foreseeable.

While I think that courts and tribunals have, as a general rule, dealt well with the foreseeability problem, several difficult questions remain. Of these, I wish to mention just one for the purpose of illustrating my third theme -- the question of what must be foreseeable. The commentators are generally agreed that the fact and nature of the loss must be foreseeable, but there is disagreement as to whether the extent of the loss must be foreseeable. Thus, Professors Stoll and Gruber have commented that while the precise amount of the loss need not be foreseen, "attempts to restrict the notion of foreseeability solely to the type of loss and to exclude its extent are not convincing."[48] To the contrary, others have argued that the foreseeability requirement should be restricted to the fact and nature only: extent need not be foreseeable as price fluctuation, which is often significant, is an established fact of life in international trade and it would be unacceptable for a defendant to escape liability on the ground that he could not foresee the full extent of the loss caused by such a fluctuation. [page 47]

Whatever the merits of the debate, it seems clear that there is a legitimate argument here as to the precise meaning of Art. 74. What then should a court or tribunal do if faced with this issue? It is suggested, and here I return to my third theme, that in respect of such questions the Principles of International Commercial Contracts ("PICC") have a proper role to play. Published originally by UNIDROIT in 1994 and in an amended form in 2004, the objective of PICC is to establish a balanced set of rules for use throughout the world, irrespective of legal traditions and the economic and political conditions in which they are to be applied. Though merely of persuasive authority, they are likely to be important in a number of ways, one of which is as a means of interpreting and supplementing international uniform law instruments.[49] Where, as in the case under discussion, there is a legitimate disagreement as to the meaning of a particular provision, recourse to PICC can aid courts and tribunals in the identification of autonomous and internationally uniform rules and principles that may assist in resolving the case. In regard to the question under discussion, for example, the comment to Art. 7.4.4 PICC states that "[f]oreseeability 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." It may of course be objected that here the PICC merely replace one difficult question with another. Thus, while the PICC make clear that the extent of the harm need not be foreseeable, this is subject to the proviso that the extent should not be so different that in reality the kind of loss suffered is different from that foreseen. What is important, however, is that there is a relatively clear statement that foreseeability does not relate to extent.

I do not for the moment wish to debate the merits of the rule adopted, but rather want to make the point that in the PICC courts and tribunals have an instrument that enables them more easily to identify autonomous and internationally uniform rules and principles, thereby limiting or even avoiding altogether a time-consuming and expensive comparative survey of solutions adopted by different national systems. Thus, the effect of a proper and systematic use of PICC should be to facilitate the tasks of courts and arbitrators and at the same time to promote the harmonisation of international commercial laws. [page 48]

3. Proof of loss

The final issue that I propose to comment on is that of the standard to be applied in proving loss under the Convention. It seems to be generally accepted that the distribution of the burden of proof falls within the scope of the Convention even though the matter is not expressly dealt with.[50] In the context of a claim for damages, it is for the claimant to prove that he has actually suffered a loss, the amount of that loss and that the loss was caused by the breach. Thus far, there is perhaps little disagreement. However, when we ask the question what standard should be applied to the proof of loss and its amount, the picture becomes less clear and when one looks at the case law on the issue, one can identify a number of different approaches.

Most commentaries [51] and decided cases have treated the question of standard of proving loss as a procedural matter falling outside the Conventions).[52] Thus, by way of example, in one Swiss decision, the Court stated that "[t]he law of evidence is determined by the lex fori, as the law of evidence belongs to the procedural law. Therefore, each court applies its own law of evidence."[53] Other courts, however, have treated the matter as one governed by the Convention although there has been little satisfactory explanation of how the relevant standard has been derived and indeed there is no agreement on what the relevant standard is.[54] Other approaches can also be found in case law [page 49] including, for example, placing the matter in the discretion of the court to be determined according to what is equitable and good (ex aequo et bono).[55]

That differing views exist on the approach to be taken to what is an important practical issue is apparent. Inevitably this is likely to lead to non-uniform decision making. Without necessarily seeking to resolve the issue, it is my view that this is a matter to which insufficient attention has been paid in the literature and in respect of which we have perhaps become too fixated by classification. Although issues such as standard of proof may at first sight appear to be procedural, the procedural/ substantive distinction is not clear cut. As one author has pointed out, "there exists no systematic abstract criterion that would enable a given case to be classified unequivocally and rationally ... as being either of a 'procedural' or a 'substantive' nature. Rather, it is the case law that decides, on the basis of policy considerations and with reference to the specific nature of each legal system, taking into account the consequences which, within these systems, might derive from the choice of one or the other of these two qualifications."[56] Thus, to decide the question whether a matter is governed by the Convention on such shaky foundations is in my view unwise. Moreover, even if the matter is 'procedural', it does not follow that it is not governed by the Convention. There has, for example, been a vigorous debate concerning other issues of evidence and it seems clear that some issues of the law of evidence may fall within the Convention.[57]

As previously said, my point here is not necessarily to offer a solution to this issue (though, for what it is worth, I do think that this matter is governed by the Convention and can be resolved by reference to a general principle of reasonableness). Rather, I wish to focus upon the final theme that I mentioned earlier, namely, the need for academics and courts to continue to explore matters that could properly fall within CISG and thereby contribute to the harmonisation agenda. There are surely no great issues of public policy requiring proof of loss to be treated as falling outside the scope of the Convention, nor would treating it as falling within that scope upset the political balance upon [page 50] which the Convention is based. In short, this issue, and other evidential issues, offer fruitful ground for research and, most importantly, offer further avenues for achieving the harmonisation of international sales law.

III. Conclusion

CISG has without doubt been a great success and I very much hope that the U. K. will eventually ratify it; sooner rather than later. In this respect, one matter that I think is particularly regrettable to date is that the English courts, which have considerable, perhaps unrivalled, experience of dealing with international commercial disputes, have played no role in its development. There are a number of challenges ahead, but so long as the Convention remains the subject of intense scrutiny in its day-to-day application my sense is that these challenges will be overcome. As a final aside, my personal hope is that U.K. scholars and courts will in future be able to engage properly in the ongoing scrutiny and that we will have a role to play in the ongoing debate over the development of CISG. [page 51]


FOOTNOTES

1. See United Nations Convention on Contracts for the International Sale of Goods, U.N. Doc. A/CONF.97/18; available at: <http://www.cisg.law.pace.edu/cisg/text/treaty.html>.

2. The text of the Convention was adopted on 11 April 1980 at a diplomatic conference in Vienna. It came into force in 1988 when it acquired the requisite number of ratifications.

3. As of 30 January 2006, 67 States have adopted CISG.

4. The Pace Law School CISG Database is the most extensive resource on the Convention: it contains almost 1,000 full texts of commentaries, books, monographs and related materials in addition to in reports of approximately 1,700 cases.

5. By way of example, the Scandinavian states' sales laws have been codified using CISG as a model. It has also been very influential in modern codifications such as the German Modernization of the Law of Obligations, and international restatements such as the Principles of International Commercial Contracts, see further, Commentary on the UN Convention on the International Sale of Goods, ed. by P. Schlechtriem/I. Schwenzer (-Schlechtriem), 2. (Engl.) ed. (2005) pp. 10-11 (cited: Schlechtriem/Schwenzer [-author]).

6. See, B. Nicholas. The United Kingdom and the Vienna Sales Convention: Another Case of Splendid Isolation?, available at: <http://www.cnr.it/CRDCS/nicholas.htm>.In at least 50% of the cases before it, one party is not British and in 30% neither is. A large amount of arbitration also takes place in London. See also, J. Linarelli, The Economics of Uniform Laws and Uniform Lawmaking: Wayne L. Rev. 48 (2003) 1387; also available online at: <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=384180>.

7. See, e.g., M. Bridge, Uniformity and Diversity in the Law of International Sale: Pace Int. L. Rev. l5 (2003) 55-89; also available online at: <http://www.cisg.law.pace.edu/cisg/biblio/bridge.html>. Bridge's claim is not to a general superiority of English law (indeed, he recognizes that the Convention may be better suited than English law to dealing with certain types of disputes), but rather that English law is better developed and therefore better suited to resolving disputes arising in the field of commodity trading. See also J. Hobhouse, International Conventions and Commercial Law; the Pursuit of Uniformity: L.Q. Rev. 106 (1990) 530. For a critical view, see R. Goode, Insularity or Leadership, The Role of the United Kingdom in the Harmonisation of International Commercial Law: Int. Camp. L.Q. 5 (2001) 751.

8. The Sale of Goods Act 1979 (heavily amended as it has been) merely consolidated its 1893 predecessor and amendments. See, also, the Marine Insurance Act 1906 and the Bills of Exchange Act 1882.

9. M. Reynolds, A Note of Caution, in: The Frontiers of Liability, ed. by P. Birks II (1994) 24. See also. M. Bridge, Uniformity and Diversity in the Law of International Sale: Pace Int. L. Rev. 15 (2003) 55-89; and M. Bridge, The 1973 Mississippi Floods: 'Force Majeure' and 'Prohibition of Export', in: Force Majeure and Frustration of Contract, ed. by E. McKendrick (1995) 287.

10. M. Bridge, International Private Commodity Sales: Can. Bus. L.J. 19 (1991) 485.

11. Reynolds (supra n.9). See also, A. Mullis, Termination for breach of contract in CIF Contracts under the Vienna Convention and English Law: Is there a substantial difference?, in: Contemporary issues in Commercial Law, Essays in Honour of A.G. Guest, ed. by C. Lomicka/E. Morse (1997) at 137ff., available online at: <http://www.cisg.law.pace.edu/cisg/biblio/mullis.html>.

12. BGH 3.4.1996, BGHZ 132,290, also available at: <http://cisgw3.law.pace.edu/cases/960403g1.html>.

13. See Arcos v. Ronaasen, [1933] A.C. 470, in which it was held that a buyer was entitled to reject wooden staves that were not of the exact size contracted for, despite the fact that they could still be used for the purpose for which they had been purchased, i.e., to make barrels. See also, Re Moore and Landauer, [1929] 2 K.B. 519.

14. See, for example, Hansson v. Hamel & Horley, [1922] A.C. 36 and Toepfer v. Lenersan Poortman, [1981] 1 Lloyd's Rep.143.

15. For a more detailed analysis of the case, see A. Mullis, Avoidance for Breach under the Vienna Convention, A Critical Analysis of some of the Early Cases, in: Anglo-Swedish Studies in Law, ed. by M. Andreas/N. Jarborg (1998) 326ff.; available online at: <http://www.cisg.law.pace.edu/cisg/biblio/mullis1.html>.

16. P. Schlechtriem, Interpretation. Gap-Filling and Further Development of the UN Sales Convention: Pace Int. L. Rev. 16 (2004) 279, also available at: <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem6.html>.

17. See A. Mullis (supra n.11); and A. Williams, Forecasting the Potential Impact of the Vienna Sales Convention on International Sales Law in the United Kingdom: Pace Rev. CISG 2000/2001, 9-57.

18. See Bridge (supra n.7).

19. Bridge (supra n.7) quotes the following, no doubt apocryphal, story of an unnamed senior civil servant who pointed out that "if exporters and importers were to stage a demonstration in Whitehall in favour of CISG, the Government would take the matter seriously." He wryly notes, at 70, "That conjures up strange visions of chanting demonstrators -- 'What do we want? We want the CISG. When do we want it? We want it now'."

20. Department of Trade and Industry, Report to the House of Commons (House of Commons Library, Great Britain, February 1999).

21. Hansard, House of Lords, 7 February 2005. Written Answer, col. 87.

22. Art. 74 provides that "[d]amages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. 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 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."

23. Art. 77 provides that "[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."

24. See further, The Pace Law School CISG Database for Arts. 74-77. Some of the more important and interesting articles include: E. Farnsworth, Damages and Specific Relief: Am. J. Comp. L. 27 (1979) 247-253, also available at: <http://www.cisg.law.pace.edu/cisg/biblio/farns.html>; F. Ferrari, Comparative Ruminations on the Foreseeability of Damages in Contract Law: La. L. Rev. 53 (1993) 1257, also available online at: <http://www.cisg.law.pace.edu/cisg/biblio/ferrari9.html>; A. Murphey, Consequential Damages in Contracts for the International Sale of Goods and the Legacy of Hadley: Wash. J. Int. L. Econ.23 (1989) 415, available online at: <http://www.cisg.law.pace.edu/cisg/biblio/murphey.html>; D. Saidov, Methods of Limiting Damages under the Vienna Convention on Contracts for the International Sale of Goods, (December 2001), available at: <http://www.cisg.law.pace.edu/cisg/biblio/saidov.html>; P. Schlechtriem, Damages, avoidance of the contract and performance interest under CISG, (2005), available at: <http://www.cisg-online.ch/cisg/Schlechtriem_Damages_Avoidance.pdf> J. Sutton, Measuring Damages under the UN Convention on the International Sale of Goods: Ohio State L.J. 50 (1989) 737, available at: <http://www.cisg.law.pace.edu/cisg/biblio/sutton.html>.

25. For an excellent survey of the existing case law, see L. DiMatteo/L. Dhooge/S. Greene/V. Maurer/M. Pagnattaro, The Interpretive Turn in International Sales law: An Analysis of Fifteen Years of CISG Jurisprudence: Nw. J. Int. L. Bus. 34 (2004) 299-440.

26. On which, see infra, text to n. 49.

27. See, for an excellent discussion of many of the issues, Saidov (supra n.24). See, also, S. Eiselen, Unresolved damages issues of the CISG, a comparative analysis: Comp. Int. L.J. Southern Africa 38 (2005) 32-46, available online at: <http://www.cisg.law.pace.edu/cisg/biblio/eiselen5.html>.

28. See, e.g., Schlechtriem/Schwenzer (-Stoll/Gruber) (supra n.5) Art. 74, p. 746. See, also, Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft (Arbitral Tribunal -- Vienna) 15.6.1994, Arbitral award No. SCH-4366, available at: <http://cisgw3.law.pace.edu/cases/940615a3.html>; and Delchi Carrier S.p.A. v. Rotorex, Corp. U.S. Ct. App. (2d Cir.), 6 December 1995, also available at: <http://cisgw3.law.pace.edu/cases/951206u1.html>.

29. See, e.g., Schlechtriem/Schwenzer (-Stoll/Gruber) (supra n. 5) Art. 74, p. 759; C. Bianca/M. Bonell, Commentary on the International Sales Law (1987) Art. 74, note 3.5; and Saidov (supra n. 24). Some authors, however, have regarded this as a issue that is not dealt with by the Convention and thus must be dealt with either by recourse to the general principles on which the Convention is based (see, e.g., Eiselen [supra n.27]), or as a matter to be left to the applicable procedural law (see W. Witz/H. Salger/M. Lorenz, International Einheitliches Kaufrecht [2000] Art. 74, para. 15).

30. ICC International Court of Arbitration 23.8.1994, Arbitral award No.7660, available at: <http://cisgw3.law.pace.edu/cases/947660i1.html>; ICAC International Commercial Arbitration Court at the Russian Federation Chamber of Commerce and Industry 14.9.1998, Arbitral award No. 131/1996: <http://cisgw3.law.pace.edu/cases/980914r1.html>; ICAC 14.9.1998, Arbitral award No.345/1996, commented on by D. Saidov, Cases on CISG Decided in the Russian Federation: Vindobona J. Inc. Com. L. Arbitr. 7 (2003) 1-62, available online at: <http://www.cisg.law.pace.edu/cisg/biblio/saidov1.html>.

31. This may well have been the reason why the ICC Arbitral Tribunal refused to allow the claim. Although the decision can be read as precluding claims for future loss, it is equally capable of being read as a claim where the future loss had simply not been established or sufficiently quantified. In rejecting the buyer's claim for indemnification of a pending third-party claim, the tribunal stated: "As that court [i.e., the Prague Court seized of the third party claim] has not yet ruled on [buyer's] liability to XYZ it is clear that -- as of now [buyer] has not suffered any damage as required by CISG Art. 74. This is also true with respect to [buyer's] further argument that the amount due to [buyer] but withheld by XVZ should be treated as damages. Indeed, also the lawsuit between [buyer] and XYZ is still pending so that ... for that reason there is -- as of now -- no damage that [buyer] has suffered. Accordingly, the claim must be rejected ...". The Russian cases, however, are less easy to explain on this basis.

32. I am grateful to Djakhongir Saidov for drawing this issue to my attention. He discusses it in Saidov (supra n. 30).

33. Art. 7(1) provides that "[i]n the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade".

34. There is an ever-growing literature pointing out the homeward trend and its dangers; see, F. Ferrari, Tribunale di Vigevano: Specific Aspects of the CISG Uniformity Dealt With: J.L. Com. 20 (2001) 225-239, available at: <http://www.cisg.law.pace.edu/cisg/biblio/ferrari6.html>; H. Flechtner, The Several Texts of the CISG in a Decentralized System: Observations on Translations, Reservations and other Challenges to the Uniformity principle in Article 7(1): J.L. Com. (1998) 187, available at: <http://www.cisg.law.pace.edu/cisg/biblio/flecht1.html>: P. Hackney, Is the United Nations Convention on the International Sale of Goods Achieving Uniformity?: La. L. Rev. 61 (2001) 473, available at: <http://www.cisg.law.pace.edu/cisg/biblio/hackney.html> C. Andersen, The Uniform International Sales Law and the Global Jurisconsultorium: J.L. Com. (2005) 159, available at: <http://www.cisg.law.pace.edu/cisg/biblio/andersen3.html> DiMatteo/Dhooge/Greene/Maurer/Pagnattaro (supra n. 25). In many respects, the fact that there is so much literature is very positive. It is only by attempting "to shine a light in dark places" that the true path will be revealed!

35. Zapata Hermanos v. Hearthside Baking, U.S. Ct. App. (7th Cir.), 19 November 2002, available at: <http://cisgw3.law.pace.edu/cases/021119u1.html>.

36. Zapata Hermanos v. Hearthside Baking, U.S. Dist. Ct. (N.D Ill.), 28 August 2001, available at: <http://cisgw3.law.pace.edu/cases/010828u1.html>.

37. Zapata Hermanos v. Hearthside Baking (supra n.35).

38. According to Posner J., "[T]he Convention is about contracts, not about procedure. The principles for determining when a losing party must reimburse the winner for the latter's expense of litigation are usually not a part of a substantive body of law, such as contract law, but a part of procedural law ... not only is the question of attorneys' fees not 'expressly settled' in the Convention, it is not even mentioned. And there are no 'principles' that can be drawn out of the provisions of the Convention for determining whether 'loss' includes attorneys' fees; so by the terms of the Convention itself the matter must be left to domestic law (i.e., the law picked out by the rules of private international law,' which means the rules governing choice of law in international legal disputes)."

39. See, for example, J. Felemegas, An Interpretation of Article 74 CISG by the U.S. Circuit Court of Appeals: Pace Int. L. Rev. 15 (2003) 91, available at: <http://cisgw3.law.pace.edu/cisg/biblio/felemegas4.html>; H. Flechtner/J. Lookofsky, Viva Zapata! -- American Procedure and CISG Substance in a U.S. Circuit Court of Appeal; Vindobona J. Int. Com. L. Arbitr. 7 (2003) 93, available at: <http://cisgw3.law.pace.edu/cisg/biblio/flechtner5.html>; T. Keily, How Does the Cookie Crumble? -- Legal Costs under a Uniform Interpretation of the United Nations Convention on Contracts for the International Sale of Goods, available at <http://cisgw3.law.pace.edu/cisg/biblio/keily2.html>.

40. Flechtner/Lookofsky (previous note) observe, at 97, that "there is no reason to suppose that any Convention signatories (neither 'loser-pays' countries nor countries like the United States) so much as thought about the fee-shifting question when the Convention was made, and that the fee-shifting issue, if it had been considered, could well have been a 'deal-breaker'. In other words, the United States might well not have signed the Convention had it thought that in doing so it was abandoning the American rule for international sales transactions litigated in its domestic courts, particularly when the Art. 74 regime that would replace it appears so ill-designed for the task."

41. See, e.g., J. Felemegas (supra n.39); J. Vanto, Attorneys' fees as damages in international commercial litigation; Pace Int. L. Rev. 15 (2003) 203-222, available at: <http://cisgw3.law.pace.edu/cisg/biblio/vanto1.html#iii>.

42. See Posner J. in Zapata Hermanos v. Hearthside Baking (supra n. 35): "The interpretation of 'loss' for which Zapata contends would produce anomalies, which is another reason to reject the interpretation. On Zapata's view the prevailing plaintiff in a suit under the Convention would ... get his attorneys' fees reimbursed more or less automatically ... But what if the defendant won?" See, also, Flechtner/Lookofsky, (supra n. 39) 96-7.

43. Felemegas (supra n.39).

44. Particularly helpful articles on foreseeability include: Murphey, Saidov (both supra n. 24); L. Vekas, The Foreseeability Doctrine in Contractual Damage Cases: Acta juridica Hungarica 43 (2002) 145, available at: <http://www.cisg.law.pace.edu/cisg/biblio/vekas.html>: Ferrari (supra n. 24): E. Schneider, Consequential Damages in the International Sale of Goods: Analysis of Two Decisions: Int. Bus. L. 16 (1995) 615, available at: <http://www.cisg.law.pace.edu/cisg/wais/db/articles/schnedr2.html>.

45. See, e.g., Murphey (supra n. 24); M. Bridge. The international Sale of Goods: Law and Practice (1999) 102-3; and Schlechtriem/Schwenzer (-Stoll/Gruber) (supra n. 5) Art. 74, at p.705.

46. See Helsingfors hovrätt (Helsinki, Finland) 26.10.2000, in which the loss of goodwill was held to be foreseeable, available at: <http://cisgw3.law.pace.edu/cases/001026f5.html>. It is worth noting, however, that several other courts have refused to allow such a claim on the basis that it was not substantiated: e.g., in Cour d'appel, Grenoble 21.10.1999, available at: <http://cisgw3.law.pace.edu/cases/991021f1.html>, recovery under CISG for loss of goodwill was refused in the absence of clear proof of actual loss to the business.

47. Hadley v. Baxendale (1854), 9 Ex. 341 (the foundational case in the common law for the 'remoteness' rule) requires that the loss must have been 'not unlikely' to occur, or a 'serious possibility'. The Convention requires only that the loss must have been foreseeable as a 'possible consequence' of the breach. Note that while most commentators agree with the view that the Convention is more favourable than English law in this regard, A. Farnsworth (Damages and Specific Relief: Am.J.Comp.L. 27 [1979] 253) in noting; that the reference in Art. 74 to 'possible' consequences "may seem at first to cast a wider net than the statement's 'probable result'," comments that "the preceding clause ('in light of the facts ...') cuts this back at least to the scope of the ... language." See, to similar effect, Schlechtriem Schwenzer (-Stoll/Gruber) (supra n. 5) Art. 74, p.764.

48. Schlechtriem/Schwenzer (-Stoll/Gruber) (supra n.5) Art. 74, p. 766

49. The PICC are available online at: <http://www.unidroit.org/english/principles/contracts/main.htm>. See, for discussion of the Principles, M. Bonell, UNIDROIT Principles 2004, The New Edition of the Principles of International Commercial Contracts adopted by the International Institute for the Unification of Private Law: Unif. L. Rev. 2004. 5; M. Bonell, An International Restatement of Contract Law: The UNIDROIT Principles of International Commercial Contracts 3 (2005). See also, R. Zimmermann, Die Unidroit-Grundregeln der internationalen Handelsvertrage 2004 in vergleichender Perspektive: ZEuP 18 (2005) 264-290.

50. See generally F. Ferrari, Burden of Proof under the CISG: Pace Review of the Convention on Contracts for the International Sale of Goods 2000/2001, 1: Schlechtriem/Schwenzer (-Stoll/Gruber) (supra n.5) Art. 74, p. 771. For case law supporting this position see, e.g., Tribunale (Trib.) Vigevano (Italy), 12.7.2000 at: <http://cisgw3.law.pace.edu/cases/000712i3.html>; Handelsgericht (HG) Zurich (Switzerland) 10.2.1999 at: <http://cisgw3.law.pace.edu/cases/990210s1.html>; and Bezirksgaricht Saane (Switzerland) 20.2.1997, Schweizcrische Zeitschrift fur Internationales und Europaiches Recht (SZIER) 1999, 195, also available at: <http://cisgw3.law.pace.edu/cases/970220s1.html>.

51. See, e.g., Schlechtriem/Schwenzer (-Stoll/Gruber) (supra n. 5) Art. 74, p. 772; J. Lookofsky, Consequential Damages in Comparative' Context: From Breach of Promise to Monetary Remedy in the American, Scandinavian and International Law of Contracts and Sales (1989) 283; H. Bernstein/J. Lookofsky, Understanding the CISG in Europe 2 (2003) 144; and Schneider (supra n.44).

52. See HG Zurich 10.2.1999 (supra n. 50), in which it was held that "the CISG does not determine which degree of certainty is necessary for a judge to form his or her profit hypothesis." See also Bezirksgericht Saane 20.2.1997 (supra. n 50), in which the Court stated that "CISG does not provide any principle regarding damages whose exact figure is not verifiable".

53. See Bezirksgericht Saane 20.2.1997 (supra n.50).

54. See Trib, Vigevano 12.7.2000 (supra n. 50); Oberlandesgericht (OLG) Celle (Germany) 2.9.1998, OLG-Report Celle 1999, 360, also at: <http://cisgw3.law.pace.edu/cases/980902g1.html> ("under Art 74 the buyer would have to exactly calculate her damage"); OLG Köln (Germany) 21.5.1996, at: <http://cisgw3.law.pace.edu/cases/960521g1.html>; and Landgericht (LG) Munchen (Germany) 20.2.2002, Internationales Handelsrecht (IHR) 3 (2003) 24, also at; <http://cisgw3.law.pace.edu/cases/020220g1.html> ("[a] damages claim according to Art. 74 CISG ... necessitates a specific ascertainment of damage").

55. ICC International Court of Arbitration, Arbitral award No. 7645 of March 1995, at: <http://cisgw3.law.pace.edu/cases/957645i1.html> (in which it was decided that "general principles of law" determined the issue). Rechtbank van koophandel Hasselt (Belgium) 18.10.1995, at: <http://cisgw3.law.pace.edu/cases/951018b1.html> (in which damages were assessed ex aequo et bono).

56. See C. Orlandi, Procedural Law Issues and Law Conventions; Unif. L. Rev. 5 (2000) 23, available at: <http://www.cisg.law.pace.edu/cisg/biblio/orlandi.html>, which cites the above quotation from V. Denti, La relatività della distinzione tra norme sostanziali e norme processuali, in: id., Dall'azione al giudicato (1983) 3ff.

57. The issue of burden of proof, for example, is treated by almost all commentators as falling within the ambit of the Convention.


Pace Law School Institute of International Commercial Law - Last updated October 25, 2007
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