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Reproduced with permission of 13 Vindobona Journal of International Commercial Law & Arbitration (1/2009) 197-216

The Present State of Damages under the CISG: A Critical Assessment

Djakhongir Saidov [*]

  1. Introduction
  2. Heads of Recoverable Loss: Unlocking the Convention's Values
    2.1     Losses flowing from changes in the value of currencies and
              liability to State authorities: Commitment to full compensation
    2.2     Loss of chance and business reputation / goodwill: Relevance
              of considerations other than full compensation
  3. Methods of Limiting Damages: Allocating Risks and Maintaining a Fair Balance
  4. "Concrete" v. "Abstract" Calculation: Perfect Compensation v. Certainty
  5. Markets, Trade Terms and Calculation of Damages: ProXimity to Modern Commercial Reality
  6. Conclusion

1. INTRODUCTION

It is a privilege to be included in this series of contributions in memory of Professor Peter Schlechtriem. Professor Schlechtriem has made an enormous contribution to the development of international and comparative commercial and contract law. I have personally benefited greatly from Professor Schlechtriem's numerous writings on the Vienna Sales Convention (hereinafter the 'CISG' or 'Convention'). This paper addresses some aspects relating to damages under the Convention, a topic on which Professor Schlechtriem has written extensively. He was at the forefront of the major debates surrounding damages under the CISG, and he has tackled and refined our understanding of some of the most intractable issues. He also did much to demonstrate that the Convention is a suitable and adequate legal regime for dealing with the complexities arising from modern international trade.

It is in this spirit that I propose to examine the Convention's remedy of damages for breach of contract. My principal focus is on whether the Convention has proved to be an effective and reliable sales law, capable of meeting the needs and expectations of business persons. In other words, so far as damages are concerned what do more than twenty years of the Convention's life tell us about the level of success it has had as an area of commercial law and as an instrument governing a great variety of international sales transactions? Although my discussion is selective, I hope that it will shed some [page 197] light on this question. I propose to address those issues which, in my view, have not yet been sufficiently addressed. These include aspects of recoverability of losses, limitation and calculation of damages.

2. HEADS OF RECOVERABLE LOSS: [1] UNLOCKING THE CONVENTION'S VALUES

      2.1 Losses flowing from changes in the value of currencies and liability to State authorities: Commitment to full compensation

      By and large, judges and arbitrators routinely and diligently implement the principles of full compensation and the protection of the expectation interest which aim to place the injured party, in monetary terms, in as good a position as that in which it would have been had the contract been properly performed.[2] However, there are still questions about the extent of the legal community's commitment to these principles. One area which does not seem to have settled relates to losses arising from changes in the value of currencies. It includes losses flowing from changes in the purchasing power of a currency ('internal' value) and losses arising from changes in the value of one currency in relation to another ('external' value).

The former type of loss may occur, for example, where the buyer makes a late payment and the currency of payment depreciates between the date when the payment was due and the date when it was actually made. The seller can argue that as a consequence of late payment the amount it received is less than what it would have received if the payment had been made on time. One objection to the recoverability of this loss is based on the principle of nominalism [3] according to which any change in the purchasing power of currency should be disregarded and it is the currency's face value that should be relied upon.[4] Nonetheless, it is submitted that this principle cannot prevent the recoverability of this loss. Nominalism has been said to emanate from the parties' presumed intentions, with the reasoning being that by agreeing on a particular currency, they are presumed to have intended their obligations on 'a unit for [page 198] unit basis'.[5] In other words, the presumption seems to be that each unit of the performance should correspond to a unit of the currency in question, despite the possibility of the change in this currency's purchasing power. If so, it has been correctly argued that while drawing such presumptions may be appropriate for the payment of the price or similar claims for the payment of a pre-determined sum of money, these presumptions should not be relevant (unless there is evidence of the contracting parties' intention to the contrary) where damages are claimed since the innocent party does not intend that a contract be broken and thus should not suffer the consequence of the breach.[6] Therefore, considering that this loss is a real financial loss, it must be regarded as recoverable if the goals of full compensation and the protection of the expectation interest are to be pursued.[7]

More peculiar to international transactions are losses flowing from changes in the currencies' external value. They may occur where the currency of contract devalues against the currency of payment or the latter strengthens against the former. Another example is where the seller intends to exchange or has exchanged the currency of payment for another currency, which will often, but not necessarily,[8] be its domestic currency. In that case where the buyer makes a late payment, the seller may suffer a loss if the value of the payment currency has devalued against its domestic currency or vice versa. The seller may argue that as a result of the breach and of the change in the exchange rate, it has received less in its domestic currency than what it would have received had the payment been made on time.

The principle of full compensation dictates that damages should be awarded because the innocent party suffers a real financial loss.[9] Unfortunately, whilst in some cases this has been recognised, some tribunals have held that this should not be the case seemingly on the ground that it is the creditor's 'domestic affair'.[10] However, it seems clear that the fact that the seller exchanges the currency of payment into its domestic [page 199] currency cannot in itself preclude the recovery of exchange rate loss.[11] At the same time, to prevent overcompensation, the question of whether the purpose for which the seller used or intended to use its domestic currency was affected by the breach may have to be addressed.[12] Thus, if, after having converted the buyer's late payment into its domestic currency, the seller has decided to purchase goods/services with its domestic currency, and the price for those goods/services has fallen between the due date and the date of payment to a level which makes the amount received sufficient for purchasing them, the seller cannot be said to have suffered any loss if its overall financial position is the same as what it would have been had the payment been made on time.[13] In contrast, if the seller used or intends to use its domestic currency to purchase another currency and can prove that as a result of the breach, it has bought a lower amount in that other currency than what it would have bought had the buyer paid on time, damages should be awarded for this loss and for any diminution in the seller's overall financial position.[14]

There are some other instances where there were no good reasons for not awarding damages for losses which are specific to international sales. For example, there are a number of cases where as a result of non-payment, an unpaid seller had to pay penalties to state authorities for its failure to sell foreign currency on time as required by the law of the seller's country.[15] Some courts suggested that damages for such a loss were not recoverable because the seller had incurred liability not as a subject of private contractual relations but as a taxpayer and subject of administrative public [page 200] law.[16] Yet, there is no reason in principle why such damages cannot be recoverable as long as the requirements of proving loss and limiting damages are met and this position has been adopted in the majority of cases.[17]

      2.2. Loss of chance and business reputation / goodwill: Relevance of considerations other than full compensation

      Where losses are clearly tangible and of a financial nature (such as those discussed in the previous section), the principles of full compensation and the protection of the expectation or performance interest play an important role in the reasoning on whether those losses are recoverable and compete with other conflicting considerations.[18] Where the tangibility and financial nature of losses are not as evident, the question of whether such losses should be recoverable will have to be answered by reference to some other considerations since full compensation would require their recoverability only if they are regarded as compensable losses in the first place.[19] The primary examples of such losses are loss of a chance and loss of business reputation and goodwill.

The task is then to determine what constitutes a 'loss'. It is submitted that a 'loss' should be regarded as damage inflicted on what business persons regard as important 'commercial assets'. There is now ample support for the proposition that both a 'chance to profit' and 'reputation and goodwill' are generally regarded as important 'commercial assets'.[20] The recoverability of loss of chance can also be justified as a tool of implementing a liberal approach to damages and as a mechanism of dealing with uncertainty of losses. Damages for loss of a chance are usually awarded where lost profits cannot be proved with the required degree of certainty, but the tribunal is satisfied that some loss has nevertheless been suffered. In such cases, the tribunals arguably strike a fair balance between the interests of both parties: while it is unfair to require the breaching party to pay the full amount of the alleged lost profit, it is equally unfair to leave the innocent party with no compensation.[21] [page 201]

Elsewhere, I explore comprehensively arguments in favour of and against the recoverability of these losses.[22] There is no agreement on these issues in cases [23] and this shows that the Convention's position is still unresolved. During the earlier stages of the Convention's development, this difference in opinion may have helped to some extent, in fleshing out some of the relevant arguments, but the current state of uncertainty is unhelpful.

3. METHODS OF LIMITING DAMAGES: ALLOCATING RISKS AND MAINTAINING A FAIR BALANCE

The business community expects the law to allocate risks between contracting parties in a reasonable and fair manner. From the standpoint of legal certainty, risk allocation has to rest on clear principles; from the standpoint of fairness, there must be room for the exercise of judicial or arbitral discretion enabling decision makers to balance various considerations to achieve a fair result in a given set of circumstances. While many rules of contract law allocate commercial risks, the rules on limiting damages do so in the most direct and illustrative manner. For this reason, an analysis of how they have been applied in practice will demonstrate whether the CISG has succeeded in allocating risks in a reasonable manner.

A recent examination of the Convention's experience shows that, as a whole, much success has been achieved.[24] Judges and arbitrators appear to be aware of the multi-layered rationale underlying the rules on causation, foreseeability and mitigation. For instance, it is widely recognised that one of the central purposes of the foreseeability rule is to allocate risks in a fair [25] and reasonable [26] manner.[27] An underlying aim is to enable the parties to calculate their risks and potential liability. [28] In this regard, it is [page 202] relevant to highlight the question of whether foreseeability only relates to the type of loss or whether it relates to both its type and extent. In a vast majority of cases, courts take the approach that the type and extent of loss must be foreseeable,[29] and it is submitted that this approach corresponds best to the 'assumption of risk' rationale. When business persons contemplate losses, they do so by thinking not only about the nature of those losses but also about the approximate limits of their potential financial liability.[30]

On occasion, a tribunal's attempt to strike a balance in allocating risks between the parties and its understanding of the nature and purpose of the foreseeability rule raises concerns. In one case,[31] the U.S. buyer's failure to pay caused the Chinese seller to lose the duty drawback which referred to a refund of an import duty where the imported goods or finished goods manufactured from them were subsequently exported from China. The tribunal held that this loss was foreseeable because the buyer ought to have known and foreseen 'relevant laws, regulations and policies of the State of the counterparty'. The tribunal stated that 'the Buyer, as a businessman in international trade, [ought to] be prudential [sic] [with respect] to its rights and obligations [...]'.

The tribunal's decision does not set out the facts in sufficient detail to enable an assessment of the correctness of its decision, and so this reasoning needs to be treated with caution. The mere fact that a party has entered into a contract with a party from a different country should not in itself be sufficient to impute knowledge into the former of the intricacies of that country's trading policy and legislation. Considering the multiplicity of circumstances in which the breaching parties may find themselves, the rule's purpose of allocating risks in a fair and reasonable manner is best implemented if sweeping presumptions are avoided and every case is decided on its particular facts. In cases such as this, it should not be assumed that buyers will necessarily be aware of [page 203] the laws and regulations of the seller's country. For the tribunal's decision to be correct, there must be some additional evidence showing, for example, that, at the time the contract was made, the buyer was informed about the relevant rules in the seller's country; or laws in the buyer's country were the same as those in the seller's country and there was a good reason why the buyer should have been aware of that fact; or, the buyer had extensive dealings with Chinese businesses and/or one of its places of business was located in China.[32]

In a recent case,[33] the foreseeability rule appears to have been used not to limit damages but to determine the relevant market for the purposes of calculating damages. The question arose whether the relevant market was the market in Romania (place of delivery) or the market in Georgia, a place where the buyer requested the seller to deliver the goods after the Romanian government had imposed an import ban. The court affirmed an arbitration award which awarded, by reference to the Romanian market, damages for lost profits on the assumption that had there been no breach, the buyer would have resold the goods in Romania. This result seems to have been achieved on the basis that it was the Romanian market which was foreseeable to the seller at the time of the conclusion of the contract as the place where the goods were to be resold. If this is the case, the decision is, with respect, based on a misunderstanding of the purpose and function of the foreseeability rule. This rule aims to limit damages, the amount of which has already been calculated, and not to an earlier stage of identifying the loss and translating it into monetary terms.[34] In this decision, in contrast, it was used for the purpose of calculating the loss, rather than limiting damages.

No matter how well the rules of limiting damages are formulated, they are very general in nature, and therefore, it may be difficult to predict precisely how the risks in a particular case will be allocated. Take the problem of the injured party's contribution to the loss. While in some cases, the relevant question will be whether this party has entirely broken the causal link between the breach and the loss, in some others, judges and arbitrators will have to face a more daunting prospect of allocating losses in accordance with the extent of each party's contribution to them.[35] The relevant criteria [page 204] should include causal criteria,[36] the gravity of each party's conduct,[37] each party's fault, justice and equity, and judicial or arbitral discretion.[38]

The interplay between some of these criteria is illustrated by one case [39] where the buyer suffered loss as a result of a breakdown of the machinery. The contract contained a procedure for determining causes of a breakdown by requiring that a bilateral commission between the parties be established to come to an agreement on this matter, and failing such agreement, each party ought to conduct its own examination of what caused the breakdown. Neither the commission nor the parties themselves managed to identify whether the seller's breach or the buyer's failure to follow the instructions was responsible for the buyer's loss. The tribunal stated that:

due to the fact that the parties [had] failed to determine the cause of the breakdown of the equipment, both of them [had to] suffer a financial burden resulting from that. The greater share of the liability [was] imposed on the Seller since it, as the supplier, had to take into account the specificity of the equipment and should have been more punctilious and demanding in following the provisions stipulated in the contract, in determining the cause of the breakdown of the equipment and in preventing further violations.[40]

By invoking concepts of 'justice and fairness', the tribunal held the seller liable for three-quarters of the loss. The decision is clearly based on the tribunal's perception of what was just and fair in the circumstances and that in turn, was intertwined with the considerations running along the lines of each party's fault. One quarter of the loss was ultimately borne by the buyer because like the seller, it was not entirely diligent in following the procedure of establishing the cause of the breakdown.

4. 'CONCRETE' v. 'ABSTRACT' CALCULATION: PERFECT COMPENSATION v. CERTAINTY

The choice and relationship between the 'concrete' and 'abstract' calculation of damages form another set of issues which reveals the law's underlying values and has a far reaching impact on the meaning of loss and the role and place of the rule of mitigation. The concrete approach to calculating damages is based on the injured party's actual circumstances and conduct while the abstract approach is based on a fixed formula which is presumed to constitute the party's loss. One example of the concrete approach can be found in the Convention's formula quantifying damages by reference to a transaction which the injured party makes in substitution of the [page 205] breached contract.[41] An example of the abstract approach can be found in a formula based on the difference between the contract price and the current price.[42]

By providing that this abstract formula is to be applied only where a substitute transaction has not been made in accordance with Art. 75 CISG, the Convention appears to favour the concrete approach. This is further reinforced by a separate provision enunciating the mitigation rule [43] which is in perfect harmony with the concrete approach.[44] The Convention's apparent preference for the concrete approach is one reason why it is said to be not as well suited for the calculation of damages as some domestic legal systems - such as English law to govern the trade in commodities.[45] In this trade sector, due to high price fluctuations, speculative nature of trading, and the 'strings' structure of many of the transactions, strict treatment of timely stipulations, speed and, above all, certainty are of paramount importance. Since much of the commodities trading is carried out for the purpose of speculation, the abstract contract and current/market price differential formula is said to be well suited for these purposes: it maintains symmetry by giving the aggrieved party both the fruits of its speculation and making it bear the losses resulting from unsuccessful speculations.[46] For these reasons, it has been argued that because the abstract method is simpler, more certain and convenient to apply, it is a better method of calculating damages for the commodities trade.[47]

While there is much to be said for this argument, it is worth making a few observations in favour of the view that the Convention's damages rules are not so far removed from the needs of commodities traders as they may appear to be. First, neither English law nor the CISG pursue either of the two approaches to calculation to [page 206] the extreme, since both recognise the possibility of displacing the prima facie [48] measure.[49] In other words, on the spectrum, with concrete and abstract approaches occupying the opposite positions, in practice both the CISG and English law 'shift their feet' somewhere closer to the middle ground, albeit on different sides. Secondly, the two approaches can be mutually complementary and often tend to converge. For instance, the question of whether the price in a substitute transaction is reasonable (concrete measure) [50] is often answered by reference to the extent to which this price corresponds to a current/market price (a component in the abstract measure). From the standpoint of the abstract measure, damages for non-conforming goods where the contract is not avoided are often measured as the difference between the value of conforming and non-conforming goods.[51] Where there is no market value for these two components, actual costs of cure or the actual resale of non-conforming goods can serve as the basis for determining the two items of value.[52] Thirdly, the premise that commodities traders would necessarily prefer the abstract measure is questionable since there is some evidence that it is the concrete measure that is sometimes preferred.[53] Finally, many tribunals show an attitude favourable to the abstract measure [54] by invoking Art. 76 CISG directly [55] albeit at the cost of disregarding the [page 207] order in which Arts. 75 and 76 CISG are to be used [56] or failing to address the relationship between the abstract measure and the mitigation rule.[57]

Nevertheless, where the two approaches do not complement each other, the difference between them may be significant. Compensating the buyer for the difference between the values of conforming and non-confirming goods (abstract measure) where the buyer managed to persuade its sub-buyer to take the goods with no price reduction [58] will arguably over-compensate the buyer. The concrete measure would, in contrast, lead to no damages since from its standpoint the buyer suffered no loss. [59]

It is where the two measures lead to different amounts of damages that the question of the relationship between them arises. In one case,[60] after breaching the contract, the buyer offered purchasing canned mandarin oranges for $11.40 per box (the contract price being $12.20). The seller rejected the offer and resold the goods for $7.79 per box. The tribunal determined that a reasonable current/market price was $10.40 and awarded the difference between the contract price ($12.20) and the current/market price ($12.20 - $10.40 = $1.80). The decision seems to imply that the seller's resale was not reasonable, as required by Art. 75 CISG; but what is the next step? Art. 76 CISG may appear to suggest that whenever Art. 75 is not applicable, Art. 76 can be invoked and this is what the tribunal appears to have done. This however raises the question of whether the mitigation rule can be ignored and, in this respect, the Convention is unclear. This lack of clarity causes uncertainty regarding the relationship between the abstract measure and the mitigation rule which is an integral part of the 'concrete' approach. The difference in outcomes is obvious: had the mitigation rule been applied, it would have most likely dictated accepting the buyer's offer to purchase for $11.40 since this would have reduced losses ($12.20 - $11.40 = $0.80). In the light of this uncertainty, it is suggested that considering that the Convention gives priority to the concrete method and that the mitigation rule is specifically enshrined in a separate provision, the abstract approach should give way [page 208] to the mitigation rule. This means that the seller should not have recovered damages exceeding $0.80 per box.

5. MARKETS, TRADE TERMS AND CALCULATION OF DAMAGES: PROXIMITY TO MODERN COMMERCIAL REALITY

The calculation of damages also reveals the complexity arising from the need to apply the law in a variety of commercial settings. One feature distinguishing international from purely domestic sales is the greater diversity of trade sectors and markets. The reliance on trade terms, such as CIF and FOB, is also more peculiar to international transactions. Because these features have an impact on calculating damages, it is important to ask whether the Convention has proved to be capable of meeting the challenges arising from the complexity of modern trade.

Let me begin with the notion of the 'market'. Although it occupies a particularly prominent role in legal systems which use the abstract method of calculation, it also plays an important role in the Convention. For example, as shown, tribunals often take the market price as a guideline in determining whether an alleged substitute transaction is reasonable under Art. 75 CISG. This notion also occupies a central place in determining the 'current price' under Art. 76 CISG since in most cases the current price will be understood to mean the market price. Ascertaining the latter, in turn, necessitates an understanding of what constitutes a market. [61] A few observations need to be made in this regard.

In modern trade, a market is certainly not just a physical location but, more broadly, a situation or system whereby potential buyers and sellers can be put in touch with one another.[62] There must be a sufficient number of buyers and sellers [63] and a certain degree of activity and regularity of transactions. These characteristic features underlie a decision in a case involving the contract for the supply of coal [64] where the tribunal stated that a market should be able to provide an objective basis for determining the value of the goods. This objective basis is 'formulated by the existence of a variety of suppliers and a variety of consumers seeking similar goods and purchasing them for a current value determined on the basis of supply and demand'. It was further held that because coal had a variety of specifications and its value was dependent on the particular needs of each customer, there was no objective basis for establishing the market price. The dependence of the value of coal on a variety of specifications and the particular needs of customers rendered coal a 'specialised' type of goods and some goods 'can be specialized to the point of insufficient activity to evidence a market'.[65] [page 209]

This definition seems in line with the way market is generally understood in modern trade.[66]

The existence of a variety of markets gives rise to numerous other questions. For instance, if the seller breaches a forward contract and no forward market exists for the contract goods; can the current price be determined by reference to a spot market price? No CISG case thus far has addressed this point, but this should, in principle, be possible as long as this hypothetical transaction can be considered a reasonable substitute in the light of the buyer's business situation and the purpose for which it bought the goods. The problem of comparability of prices is unlikely to be acute since the prices at these (physical) markets would generally reflect similar, albeit not necessarily identical, price movements.

The conclusion of a contract on particular trade terms can also pose questions important for identifying the relevant market. In particular, the Convention's starting point is that the relevant market is 'where delivery of the goods should have been made'. [67] How should this provision be interpreted, say, in CIF contracts where the seller's obligations are substantially performed by means of tendering documents? To give an example, English law does not firmly fix a place by reference to which the market price is to be determined -- presumably [68] in order to accommodate a variety of scenarios: the relevant market will vary depending on where it is reasonable for the innocent party to make a substitute transaction. This will often be the place of the destination of the goods [69] or, on another view,[70] of the tender of documents, with the two often being the same place. [71] Ultimately, the relevant market is determined on the basis of where, in the given circumstances, it would be reasonable to make a substitute transaction.[72] Against this background, it has been stated that Art. 76 CISG 'will plainly be difficult to apply with justification in CIF cases, where the presentation of documents may have little to [do] with the place where the goods happen to be at any time [...]'.[73] [page 210]

The problem is twofold. First, the CISG does not appear to take into account that CIF commodities contracts are primarily performed by the delivery of documents.[74] Secondly, a CIF buyer will often be in the position where it cannot reasonably be expected to procure a substitute on the market at the place of delivery of the goods,[75] which is often a seller's country, [76] and to prove the market price there.[77] It has been suggested that the Convention should be interpreted 'flexibly', [78] which presumably implies the position similar to that of English law.[79] However, where the seller's country is the place of delivery and there is a current price in that place, the suggested flexibility may be difficult to achieve without ignoring the text of Art. 76(2) CISG.[80] The flexibility can nonetheless be achieved,[81] albeit to a limited degree, if the delivery of the goods referred to in Art. 76(2) is interpreted in accordance with the CIF nature of the contract -- that is, with reference to the tender of documents.[82] Where the seller is a mere intermediary in a string of sales transactions, the delivery in CIF contracts undoubtedly means the tender of shipping documents which are a symbolic substitution for the goods.[83] Although a similar argument could in principle be made where the seller itself has shipped the goods,[84] the situation here is less clear because the seller's delivery obligations are not only 'documentary' but also 'physical', since it needs to place the goods on board.[85] Bearing in mind the wording of Art. 76(2),[86] it [page 211] may be more appropriate in such cases not to treat the tender of documents as a substitute for the physical delivery of the goods for the purpose of determining the current price. Art. 76(2) CISG will then need to be interpreted taking into account its underlying rationale which is based on this question: where can the innocent party be reasonably expected to make a hypothetical substitute transaction?[87]

Where there is no current price for the goods at the place of delivery, the Convention requires that reliance should be on 'the price at such other place as serves as a reasonable substitute, making due allowance for differences in the cost of transporting the goods'.[88] In all reported cases involving this provision, tribunals relied on what they called an 'international market price'. [89] In the age of globalisation of markets, the existence of international markets is hardly surprising.[90] So long as they can be duly proven, such prices can be relied on while applying Art. 76 CISG.[91]

In English law, 'market' is also often defined very restrictively in CIF contracts. If the goods are described in the contract by reference to a shipment date or a particular ship, [page 212] or goods are sold afloat, it may not be sufficient to find a market for the goods of the same genus or kind.[92] There will have to be a market for the goods of that very same description.[93] The same restrictive approach is taken where the goods have been appropriated to the contract.[94] Since finding a market defined in such restrictive terms will often be impossible, damages are then calculated on the basis of the party's actual loss. [95]

Should the same approach be taken under the Convention where the market price is used to determine the current price? The answer is not clear. First, are English cases on CIF contracts relevant? The answer is 'no', since the Convention's autonomous nature prevents any reliance on domestic law in relation to issues governed by it.[96] However, if these cases inform the meaning of the CIF term as it is used in international trade and reveal commercial practices surrounding it, they can prove valuable by explaining the commercial context in which the CISG may have to be applied. Moreover, it has been suggested [97] that to the extent that English decisions are in line with decisions in other jurisdictions, they might also find their way into the Convention through a usage.[98]

Further, it is important to understand the rationale underlying the restrictive approach to defining a market. In part, it may flow from the nature of the commodities trade, characterised by the importance of certainty and precision in defining contractual obligations. Directly related to this is the notion of 'description'[99] in English sales law, [page 213] which also seems to have played a part in leading to this approach.[100] As the time of shipment or shipment on a specified vessel can be a part of the goods' description, the market cannot be that for goods not corresponding to that description. The restrictive attitude to markets in CIF contracts may also have something to do with 'strings' -- a product of speculative trading [101] -- which require the tender of strictly conforming documents to enable the buyer to perform its sub-sale.[102] In other words, the buyer must have documents that strictly conform to the specifications in the contract in order to resell the goods. This once again requires precision in defining obligations (including the way in which the goods are described) and the grounds for termination. Strings are created by means of notices of appropriation [103] and this probably explains the position that where the notice of appropriation has been given, no goods other than those appropriated to the contract can be taken as the basis for the market differential formula. In other words, once the notice has been given, the buyer is bound to deliver those very same goods to its sub-buyer.[104]

If correct, some of these explanations are arguably relevant to the Convention, to the extent that they evidence the peculiarities of the commodities trade and the expectations of traders in this sector. Thus, the buyer's need to sell the very same goods under its sub-sale contract down the string because it has already appropriated them to that contract would mean that the buyer is even hypothetically unable to make a substitute contract, as is required under Art. 76 CISG. To the extent that this restrictive approach can be explained by 'description', a notion peculiar to English law, it should be irrelevant to the Convention.

However, it is not easy to neatly disentangle the web of possible explanations. The decisive question should be whether in the circumstances, an innocent party can reasonably be expected to make a hypothetical substitute transaction. If the approach of English cases is based on the way traders understand their contractual expectations,[105] it may be justified to take a similarly restrictive attitude to markets [page 214] where the Convention is applied in the same context. The consequence of doing so will be the need to calculate damages 'concretely'.[106]

Yet another point where a trade term is relevant for calculating damages relates to cases where either an alleged substitute transaction is made or the current price is fixed by reference to a different trade term than the one in the original contract. Clearly, the original contract prices cannot be simply compared with such prices without the necessary adjustments and this is what the tribunals have thus far been doing. For instance, in one case,[107] the original contract was made under the CFR terms while the buyer's substitute was concluded on FOB terms. Because the FOB price did not take account of freight, the tribunal added the amount of freight to that price and only then did it subtract the contract price from the adjusted price in the substitute transaction.[108]

6. CONCLUSION

Damages are a dynamically evolving area of the Convention. While discernible trends have clearly emerged in relation to some issues, such as those relating to the foreseeability of the extent of the loss, uncertainty surrounds a number of important matters relating to the recoverability of losses. The latter demonstrates that in some important respects the Convention's position is yet to crystallise. Together with some other issues, such as the problem of standards of proving losses, this shows that there are still serious challenges to the Convention's aspiration to uniformity.

The Convention's story is about the blend of idealism, realism and pragmatism. The former is evidenced by the Convention's apparent pursuit of perfect compensation by preferring the 'concrete' method of calculation. Underlying this pursuit is the idea of fairness and, as shown, this is what judges/arbitrators are often driven by when, for example, they allocate losses where both parties contribute to the loss. Attempts have also been made to interpret the Convention in line with the developments in modern commercial world, as is shown, by tribunals' reliance on the notion of an 'international market price'. Pragmatism has arguably manifested itself where the decision makers attempted to be flexible in order to apply the Convention sensibly or to find a convenient and simple solution. Therefore, the necessary adjustments to the prices are made where the substitute transaction is made by reference to a different trade term than that in the original contract. Convenience and simplicity prevailed in the minds of judges/arbitrators in cases where they invoked Art. 76 CISG directly, [page 215] without respecting the prescribed order in which Arts. 75 and 76 CISG were to be used.

In recent years, the debate on whether the Convention is well suited to the commodities trade has intensified.[109] Although the 'abstract' method has been said to be better suited to this sector than the 'concrete' method, this proposition is not free from objections.[110] Even if it is assumed to be correct, a number of points have been made above which show that the gap between the two measures is not as wide as it may appear to be. Whatever the true position may be, the fact is that the Convention has not yet been sufficiently exposed to the world of the commodities trade and it is only that exposure which should have a final say on this matter. Those legal systems which have a rich experience of dealing with this trade sector are helpful since they highlight the considerations which may need to be taken into account if the Convention is applied in this context. At the same time, it should be emphasised that the Convention's suitability to the commodities trade cannot be decisive in assessing the level of its success. We should also not overemphasise the significance of the alleged peculiarities of a particular trade and the commodities traders' resistance to the Convention. For the commodities traders, the Convention is still very much a new sales law and it has been correctly said '[l]ike all socio-systems, [commercial] circles tend to be conservative and to prefer doing things they have always done. New rules are perceived as disruptive'.[111]

The Convention is a well drafted instrument. Whilst this is generally true when it comes to damages, one problem, which has arisen because of the way it has been drafted, is the relationship between Arts. 76 and 77. As shown, there may be cases where the two provisions will lead to different amounts of damages and the lack of clarity on how they need to be resolved is unhelpful. I have suggested that Art. 77 CISG should set the ceiling for recovery in such cases. [page 216]


FOOTNOTES

* Lecturer in Commercial Law, University of Birmingham (U.K.), LLB (University of World Economy and Diplomacy, Uzbekistan), LLM (University of East Anglia), PhD (University of East Anglia).

1. See Saidov, D., The Law of Damages in International Sales -- The CISC and other International Instruments, 2008, Hart Publishing, Oxford, at pp. 39-76.

2. Ibid., at Chs. 2-3, 8-9.

3. See Landgericht Heidelberg, 27 January 1981, O 116/81 (Germany) decided under Art. 82 of the Uniform Law on the International Sale of Goods (ULIS) ('[The] financial nominalism is derived from considerations of the stability of currency and also the promotion of good faith and legal certainty. If the value of the currency had to be considered in connection with every purchase price debt, this would lead to an accelerated depreciation of the currency and would present the contracting party [...] with an incalculable risk [...]. Recognition of a loss of value of a currency as a compensable loss on grounds of a delayed payment would accelerate the drop of the value of a currency and would intervene in the monetary policies of the Contracting States.'), available at: <http://cisgw3.law.pace.edu/cases/810127g1.html>.

4. See Downes, T.A., "Nominalism, Indexation, Excuse and Revalorisation: A Comparative Survey" (1985) 101 Law Quarterly Review 98.

5. Proctor, C, "Changes in Monetary Value and the Assessment of Damages" in Saidov, D. and Cunnington, R. (eds.), Contract Damages: Domestic and International Perspectives, 2008, Hart Publishing, Oxford, at p. 464.

6. In critique of the relevance of the principle of nominalism to damages: 'the principle of nominalism [...] can have no place in the assessment of damages in tort or for breach of contract. In such cases, reference to presumed intention would not be relevant; the victim of a road accident cannot be taken to have had any intention -- presumed or otherwise -- in relation to either the occurrence of the accident or its consequences. Likewise, the innocent contracting party had not intended that the contract should be broken'. Ibid.

7. For a more extensive exploration of this issue, see Saidov, D., supra fn 1, at pp. 54-57.

8. For example, see the English case Société Française Bunge S.A. v Belcan N.V. (The 'Federal Huron') [1985] 3 All ER 378: where a French trader of soya beans, conducted its financial affairs and operations in US dollars because soya beans were 'a dollar commodity'.

9. For a similar view, see CISG Advisory Council (CISG-AC) No. 6, "Calculation of Damages under CISG Article 74", available at: <http://www.cisg.law.pace.edu/cisg/CISG-AC-op6.html>.

10. See ICAC Case 61/1993, decision dated 21 April 1994, available at: <http://cisgw3.law.pace.edu/cases/940421r1.html>; ICAC Case 442/1996, decision dated 26 February 1998.

11. As long as other requirements such as causation, foreseeability, mitigation, and those relating to proving losses are met.

12. This issue will have to be considered if it is raised by the breaching buyer who argues that damages for the exchange rate loss will over-compensate the seller.

13. Suppose that had the payment been made on time, the US seller would have exchanged the currency of payment into US Dollars, i.e., its domestic currency, and would have then received $1,300. Suppose further that the seller intended to use that money to purchase the goods at the price of $1,000. Had the buyer paid on time, the seller would have had the goods and $300. As a result of the delay in payment and strengthening of the U.S. dollar against the currency of payment between the due date of payment and the date of actual payment, the seller receives only $1,000. Suppose also that the price of the goods has also fallen during this period and the price is now $700. The seller cannot be said to have suffered any loss as a consequence of the delay in payment since the seller is in the identical position to the one in which it would have been had the contract been performed: it has the goods and $300.

14. Some courts have regarded the purpose for which the seller intended to use the payment as relevant to the question of whether damages should be awarded (see case No 17 U 146/93 Appellate Court Düsseldorf (Germany), 14 January 1994, available at: <http://cisgw3.law.pace.edu/cases/940114g1.html>). For further discussion of this case, see Saidov., D., supra fn 1 at pp. 254-255. For a similar position, see Case No 2 U 28/80, Appellate Court Hamm (Germany), 26 June 1980, available at: <http://cisgw3.law.pace.edu/cases/800626g1.html>, decided under ULIS: the exchange rate loss 'can only be affirmed if it is certain that the creditor--had he received the open payment timely--would have used it in a particular way and that the unfavourable exchange rate there has a direct impact on him. This would be the case, if the creditor would have used the amount receivable in his own currency to repay his own debts in a different currency, which is now valued as a higher rate'.

15. See Arbitration proceeding, 9 July 1999 (Ukraine), available at: <http://cisgw3.law.pace.edu/cases/990709u5.html>; Arbitration proceeding, 27 October 2004 (Ukraine), available at: <http://cisgw3.law.pace.edu/cases/041027u5.html>; Arbitration proceeding, 10 May 1999 (Ukraine), available at: <http://cisgw3.law.pace.edu/cases/990510u5.html>.

16. Gildia Ltd v. Gaiski GOK, Federal Arbitration Court for the Moscow Circuit (Resolution of the cassation instance on whether the decisions of arbitration courts are legal and substantiated), No KG-A40/5498-00 (Russia), 6 December 2000, available at: <http://cisgw3.law.pace.edu/cases/001206r1.html>.

17. See cases referred to in Saidov, D., "Cases on the Sales Convention and the UNIDROIT Principles Decided in the Russian Federation: An Update" (2005) 9 Vindobona Journal 1, at fn. 30.

18. Such as nominalism in the case of inflationary losses, the 'creditor's domestic affairs' argument in the case of exchange rate losses or the argument of the seller being 'the subject of the public law relations' in the case of penalties paid to state authorities.

19. See Saidov, D., "Damage to Business Reputation and Goodwill under the Vienna Sales Convention" in Saidov, D., and Cunnington, R., supra fn 5, at p. 392; cf. Burrows, A., Remedies for Torts and Breach of Contract, 2004, OUP, Oxford, at p. 317.

20. See Saidov, D., supra fn 1, at pp. 58-64, 70-72; Schwenzer, I. and Hachem, P., "The Scope of the CISG Provisions on Damages" in Saidov, D., and Cunnington, R., supra fn 5, at pp. 97-98.

21. Saidov, D., supra fn 1, at p. 72.

22. Ibid, at pp. 58-64, 70-72.

23. Loss of a chance was held irrecoverable in Case No HG 970238.1 Commercial Court of Zurich (Switzerland), 10 February 1999, available at: <http://cisgw3.law.pace.edu/cases/990210s1.html>. For a case where damages for loss of a chance were allowed, see Mansonville Plastics (BC) Ltd v Kurtz GmbH 2003 BCSC 1298. Damage to reputation was held not to be recoverable in Case No 10 O 72/00 District Court Darmstadt (Germany), 9 May 2000, available at: <http://cisgw3.law.pace.edu/cases/000509g1.html>; Calzados Magnanni v Shoes General International, Court of Appeal Grenoble (France), 21 October 1999, available at: <http://www.cisg.law.pace.edu/cisg/wais/db/cases2/991021f1.html>. This loss was held to be recoverable in ICC Arbitration Case No. 11849 of 2003, available at: <http://cisgw3.law.pace.edu/cases/031849i1.html>; Case No HG 970238.1, Commercial Court of Zurich (Switzerland), 10 February 1999, available at: <http://cisgw3.law.pace.edu/cases/990210s1.html>; Case No S 00/82, Helsinki Court of Appeals (Finland), 26 October 2000, available at: <http://www.cisg.law.pace.edu/cisg/wais/db/cases2/001026f5.html>; Appellate Court Gent (Belgium), 10 May 2004, available at: <http://cisgw3.law.pace.edu/cases/040510b1.html>.

24. See Saidov, D., supra fn 1, Chs. 4-6.

25. See Hart, H.L.A., and Honore, T., Causation in the Law, 1985, Clarendon Press, Oxford, at p. 230.

26. See Farnsworth, E.A., "Legal Remedies for Breach of Contract" (1970) 70 Columbia Law Review 1208.

27. For a discussion of other justifications and further references, see Saidov, D., supra fn 1, at pp. 101-103.

28. If at the time of the contract, a party foresees or is in the position to foresee a certain loss suffered by the other party if it breaches the contract, it can protect itself by excluding or reducing its potential liability, procuring insurance, bargaining for a greater benefit to be obtained from the contract, or even refusing to enter in the contract.

29. See Case No 419 O 48/01, District Court Hamburg (Germany), 21 December 2001, available at: <http://cisgw3.law.pace.edu/cases/011221g1.html>; CIETAC Arbitration proceeding, 3 June 2003, available at: <http://cisgw3.law.pace.edu/cases/030603c1.html>; ICAC Case 406/1998, decision dated 6 June 2000, available at: <http://cisgw3.law.pace.edu/cases/000606r1.html>; Case No. 95/3214, District Court of Kuopio (Finland), 5 November 1996, available at: <http://cisgw3.law.pace.edu/cases/961105f5.html>; Case No. 271 C 18968/94, Lower Court München (Germany), 23 June 1995, available at: <http://cisgw3.law.pace.edu/cases/950623g1.html>. For the position to the contrary, see ICAC Case 97/2004, decision dated 23 December 2004, available at: <http://cisgw3.law.pace.edu/cases/041223r1.html>.

30. For a more extensive explanation, see Saidov, D., supra fn 1, at pp. 116-117. See, for example, CIETAC Arbitration proceeding 3 June 2003, supra fn 29, where although the seller was in a position to foresee that a buyer would have a sub-sale contract and would make a profit therefrom, the seller could not reasonably expect that the profit margin exceeded the contract price by 100%. The tribunal awarded damages for lost profits in the amount of 20% of the original contract price because that profit margin was 'reasonable' and for that reason foreseeable. Had the tribunal the extent of loss been deemed to be irrelevant, the buyer would have recovered 100% of the contract price.

31. CIETAC Arbitration proceeding, 18 April 2003, available at: <http://cisgw3.law.pace.edu/cases/030418c1.html#i>.

32. An analogy can be drawn with the way some courts applying Art. 35 CISG have dealt with the question of whether the seller can be taken to know about the regulations in the buyer's country. Those courts have taken a similar approach to the one suggested by this author in the main text (see Supreme Court 8 March 1995 (Germany), available at: <http://cisgw3.law.pace.edu/cases/950308g3.html>; Federal Supreme Court, 2 March 2005 (Germany), available at: <http://cisgw3.law.pace.edu/cases/050302g1.html>).

33. See Macromex S.r.l. v. Globex International, Inc., Federal District Court of New York, 16 April 2008 (United States), available at: <http://cisgw3.law.pace.edu/cases/080416u1.html>; also Macromex S.r.l. v. Globex International Inc. Interim Award, American Arbitration Association, 23 October 2007, available at: <http://cisgw3.law.pace.edu/cases/071023a5.html> and Final Award, American Arbitration Association, 12 December 2007 available at: <http://cisgw3.law.pace.edu/cases/071212a5.html>.

34. For the same view in the context of English law, see Tamblyn, N., "Damages under String Contracts for Sale of Goods" (2009) Journal of Business Law 1.

35. Other international contract law instruments explicitly recognise this possibility. See Arts. 7.4.7 UPICC and 9:504 PECL.

36. See Honore, A.M., "Causation and Remoteness of Damage" in Zweigert, K. and Drobnig, U. (eds.), International Encyclopedia of Comparative Law (Vol 11, 1971, Martinus Nijhoff), Ch 7, at p. 121.

37. See Official Comment 3 on Art. 7.4.7 of the UNIDROIT Principles of International Commercial Contracts.

38. Honore, A.M., supra fn 36, at p. 121.

39. ICAC Case No. 189/2003, decision dated 29 December 2004 available at: <http://cisgw3.law.pace.edu/cases/041229r1.html>.

40. Ibid.

41. See Art. 75 CISG.

42. See Art. 76 CISC

43. See Art. 77 CISG.

44. A strict enforcement of the mitigation rule requires an inquiry into the injured party's actual conduct.

45. See Bridge, M.G., "Uniformity and Diversity in the Law of International Sale" (2003) 15 Pace International Law Review 55, at p. 67; Bridge, M.G., "The Market Rule of Damages Assessment" in Saidov, D., and Cunnington, R., supra fn 5, at pp. 446, 454-455, 458.

46. AKAS Jamal v. Moolla Dawood, Sons & Co [1916] 1 AC 175; Campbell Mostyn (Provisions) Ltd v. Barnett Trading Company [1954] 1 Lloyd's Rep 65: The market formula used in English law is different from its counterpart in Art. 76 CISG in that it refers to the market price at the time of the breach (ss. 50(3) and 51(3) Sale of Goods Act 1979 ('SGA')) while the latter is generally based on the current price at the time of avoiding the contract (for the relevance of the time of taking over of the goods, see further Art. 76). The breach date rule is arguably better in terms of maintaining symmetry as, in contrast with the time of avoidance it does not depend on the innocent party who can delay the time of avoidance to observe market movements, thereby speculating at the other party's expense. This problem, however, is to some extent alleviated by the avoidance having to take place within a reasonable time (a number of specific cases are set out in Arts. 49(2) and 64(2)) and by the requirement that, where the contract is avoided after the goods are taken over, it is the time of taking over that needs to be relied upon; see Art. 76(1) CISG.

47. See sources in supra fn 45.

48. For prima facie measures in English sales law see infra fns 49 and 51. The relevant provision in the CISG is Art. 75. Prima facie measure is an official term used in English law in the context of the measure of damages.

49. For example, in English law the prima facie market rule in Ss. 50(3) and 51(3) SGA will be displaced where one or more of its underlying assumptions are not present. This can happen, for example, where the innocent party is not aware of the breach at the time it has been committed or where there is no relevant market where the party can procure a substitute. The notion of market can also be very restrictive (see, for example, the discussion of CIF contracts below). There are also cases where the courts appear to have preferred the 'concrete' measure where there is normally a prima facie 'abstract' measure: see Bence Graphics International Ltd v. Fasson UK Ltd [1998] QB 87; cf. Slayter v. Hoyle & Smith Ltd [1920] 2 KB 11. See also Tamblyn, N., supra fn 34.

50. Article 75 CISG.

51. Section 53 SGA.

52. Conversely, if the concrete measure of cost of cure is relied upon and, at the time of calculating damages, no costs have actually been incurred, then costs which appear to be reasonable in the circumstances are likely to be relied upon. Those reasonable/notional costs then perform the same function as the market/current value or price in the 'abstract calculation' cases of, respectively, nonconformity or non-delivery/non-acceptance. Yet another example is where a tribunal wishing to calculate the buyer's future lost profits 'concretely' has to rely, in the absence of sub-sale contract, on the current/market price for the goods in the relevant time period; see Macromex Srl. v. Globex International, Inc. Federal District Court of New York, supra fn 33.

53. GAFTA 100 C1. 23.

54. For a detailed discussion see Saidov, D., supra fn 1, at pp. 192-197.

55. CIETAC Arbitration proceeding, 29 September 1997, available at: <http://cisgw3.law.pace.edu/cases/970929c1.html>; CIETAC Arbitration proceeding, 1 March 1999, available at: <http://cisgw3.law.pace.edu/cases/990301c1.html>; Case Nos. 1 U 143/95 and 410 O 21/95, Appellate Court Hamburg (Germany), 4 July 1997, available at: <http://cisgw3.law.pace.edu/cases/970704g1.html>; Case No. A3 1997 61, District Court Zug (Switzerland), 21 October 1999; see CIETAC Arbitration proceeding, 30 July 1996, available at: <http://cisgw3.law.pace.edu/cases/960730c1.html>.

56. See Art. 76(1) CISG first sentence: '(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' (emphasis added).

57. Case No. 4 R 219/01k, Appellate Court Graz (Austria), 24 January 2002, available at: <http://cisgw3.law.pace.edu/cases/020124a3.html> (Arts. 75 and 76 were treated as alternatives); ICAC Case 175/2003, decision dated 28 May 2004, available at: <http://www.cisg.law.pace.edu/cases/040528r1.html> (the abstract method was invoked with no consideration given to whether the buyer had attempted to find a replacement); ICC Arbitration Case No. 8740 of October 1996, available at: <http://cisgw3.law.pace.edu/cases/968740i1.html>; Case No. 18-40 "K", Arbitration Court of Moscow City (Russia), 3 April 1995, available at: <http://cisgw3.law.pace.edu/cases/950403r1.html> (Art. 76 CISG was thought to have priority over Art. 75 CISG). These cases demonstrate the differing approaches to the relationship between Arts. 75 and 76 and to the relationship between the mitigation rule and Art. 76.

58. Slayter v. Hoyle & Smith Ltd, supra fn 49.

59. Cf. Bridge, M.G., "The Market Rule of Damages Assessment", supra fn 45, at pp. 449-454.

60. CIETAC Arbitration proceeding, 1 March 1999, available at: <http://cisgw3.law.pace.edu/cases/99030lc1.html>.

61. See Saidov, D., supra fn 1, at pp. 199-201 and some further references.

62. Heskell v. Continental Express Ltd [1950] 1 All ER 1033, at p. 1056.

63. Bridge, M.G., The Sale of Goods, 1997, OUP, Oxford, at p. 568.

64. ICC case No. 8740 of October 1996, available at: <http://cisgw3.law.pace.edu/cases/968740i1.html>.

65. Bridge, M.G., supra fn 63, at p. 569.

66. Case No. 7 U 2959/04, Appellate Court München (Germany), 15 September 2004, available at: <http://cisgw3.law.pace.edu/cases/040915g2.html> (market implies that there are 'regular business transactions for goods of the same type').

67. Article 76(2) CISG.

68. The rationale for this approach is not explicitly set out in the relevant cases.

69. Aryeh v. Lawrence Kostoris & Son, Ltd [1967] 1 Lloyd's Rep 63, at p. 71.

70. Benjamin's Sale of Goods, 2006. London, Thomson-Sweet & Maxwell, at p. 1619 ('prima-facie the relevant market is that at the place of tender of documents').

71. C Sharpe & Co Ltd v. Nosawa & Co [1917] 2 KB 814. The fact that the place of the tender of documents was the same place as the place of destination has given rise to a different formulation of the position taken in this case, compare Benjamin's, supra fn 70, at p. 1618 (interpreting the case as fixing the relevant market price by reference to a place where documents were tendered) with Bridge, M.G., The International Sale of Goods: Law and Practice, 2007, OUP, Oxford, at p. 476 n 226 (treating it as an example of the reliance on the place of discharge).

72. Benjamin's, supra fn 70, at p. 1619.

73. Bridge, M.G., supra fn 71, at p. 593.

74. Mullis, A.C.L., "Termination for Breach of Contract in C.I.F. Contracts under the Vienna Convention and English Law; Is There a Substantial Difference?" in Lomnicka, E.Z. and Morse, C.G.J. (eds.), Contemporary Issues in Commercial Law: Essays in Honour of Prof. A.G. Guest, 1997, Sweet & Maxwell, London, also available at: <http://www.cisg.law.pace.edu/cisg/biblio/mullis.html>; Dalhuisen, J.H., Dalhuisen on International Commercial, Financial and Trade Law, 2007, Hart Publishing, Oxford-Portland at p. 424.

75. See Art. 31 CISG.

76. Cf. Bridge, M.G., supra fn 71, at p. 476, fn. 226.

77. Honnold, J.O., Uniform Law for International Sales under the 1980 United Nations Convention, 1999, Kluwer Law International, Deventer, at p. 452.

78. See Ziegel, J. and Samson, C, Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods (1981), available at: <http://www.cisg.law.pace.edu/cisg/wais/db/articles/english2.html>.

79. See the earlier discussion of the position of English law on this point such as supra fn 68 and accompanying text.

80. See Art. 76(2) CISG stating that the' the current price is the price prevailing at the place where delivery of the goods should have been made'.

81. For an attempt to interpret Art 76 flexibly, see CIETAC-Shenzhen Arbitration, 18 April 1991, available at: <http://cisgw3.law.pace.edu/cases/910418c1.html>. See also the discussion of this case in Saidov, D., supra fn 1, at p. 204, fn. 199.

82. See Benjamin's, supra fn 70, at p. 1619, n. 47: noting that it is uncertain to which of the three stages of delivery in CIF contract the notion of delivery in Art. 76(2) CISG.

83. Bridge, M.G., supra fn 71, at p. 126 and fn. 2.

84. 'Shipment under a carriage contract and the taking out of insurance, coupled with the delivery of the documents that record their accomplishment, may be seen as a substitute for the physical delivery of the goods to the buyer under a conventional contract of sale' see: Bridge, M.G., supra fn 71, at p. 126, fn. 2.

85. Ramberg, J., ICC Guide to Incoterms 2000: Understanding and Practical Use 1999, ICC Publishing SA, Paris, at p. 119.

86. See supra fn 80. The question may arise as to whether the designation of contract as 'CIF' can be interpreted as the parties' derogation, by virtue of Art. 6 CISG, from the provision in Art. 76(2) CISG which refers to the current price at the place 'where delivery of the goods should have been made'. It seems that where the seller is the shipper, the answer should probably be 'no', in the absence of any additional evidence (Arts. 8 and 9 CISG), because the term CIF does not seem to be definitive regarding the meaning of delivery since both documentary and physical duties must be performed. Where the seller is a mere intermediary, there may be a stronger case for the view that a reference to CIF should entail the derogation from Art. 76(2) CISG. As a matter of practical application, however, it is probably of no significance whether the latter approach is taken or whether Art. 76(2) is interpreted in the light of the CIF nature of the contract, as has been suggested in the main text.

87. There may well be cases where it is reasonable to expect the buyer to procure a substitute where the seller was to perform its physical delivery obligations. See, e.g., Bridge, M.G., supra fn 71, at p. 476, fn. 226.

88. Article 76(2) CISG.

89. In CIETAC Arbitration proceeding, 25 December 1998, available at: <http://cisgw3.law.pace.edu/cases/981225c2.html>, where the FOB contract was avoided in April 1997, the international FOB market price in April 1997 was taken as a reasonable substitute price. In CIETAC Arbitration proceeding 12 January 1996, available at: <http://cisgw3.law.pace.edu/cases/960112c1.html>, where the contract was for No. 2 copper scrap, 'the fair international market price for No. 2 scrap copper' was taken as the basis for the application of the 'abstract' formula, thereby ensuring that the substitute price related to the goods of precisely the same technical specifications. In CIETAC Arbitration proceeding, 2 May 1996, available at: <http://cisgw3.law.pace.edu/cases/960502c1.html>, the tribunal appeared to fix the international market price on 'CIF Rotterdam' terms as it was expressly pointed out that the original contract price included freight to Rotterdam.

90. For the recognition of an international CIF market price for gasoil in an English case, see Fortune Hong Kong Trading Ltd v. Cosco-Feoso (Singapore) Pte Ltd ('Freja Scandic') [2002] EWHC 79 (Comm).

91. An international market price should not make the notion of the comparability to the original contract entirely irrelevant. Because the rationale underlying Art. 76 CISG is based on a hypothetical substitute transaction, the current price must relate to a substitute similar to the original contract. This would mean that either an international market price which is identical or comparable to the original contract will need to be found or an international market price will constitute a general yardstick which will then need to be adjusted to approximate to the original contract. For this reason, in one case arising from nondelivery of aluminium, it was held that 'the world market price [could not] be simply taken to be the [London Metal Exchange] price [... and] the necessary adjustments to reflect transportation and other costs free Hungarian border [had to be made]' (Soinco v. NKAP, Zurich Arbitration proceeding, (Switzerland), 31 May 1996, available at: <http://cisgw3.law.pace.edu/cases/960531s1.html> (Hungary being one of the buyer's places of business).

92. FL Bourgeouis v. Wilson, Holgate & Co, Ltd [1920] 4 Lloyd's Rep 1, 3; Coastal (Bermuda) Petroleum Ltd v. VTT Vulcan Petroleum SA (No 2) (The 'Marine Star') [1994] 2 Lloyd's Rep 629, 633-634; Bern Dis A Turk Ticaret S/A TR v. International Agri Trade Co. Ltd. (The 'Selda') [1999] 1 Lloyd's Rep 729.

93. That is, shipped on the same date or within the same period, on the same ship, and/or available for the purchase afloat: Benjamin's, supra fn 70, at p. 1612.

94. R Pagnan & F.Lli. v. Lebanese Organisation for International Commerce (The 'Caloric') [1981] 2 Lloyd's Rep 675, 677 ('It seems to me that "the goods" in [...] the default cl. 28 means, in this case, the goods which had been appropriated to the contract, in other words, the goods on board Caloric. Mr. Hallgarten for the buyers, reminded me that the default might have occurred before appropriation. That is no doubt true, and in such a case "the goods" would have to bear a wider meaning, namely, goods of the same contract description. But that is no reason for applying the wider meaning where the goods have in fact been appropriated. It seems to me that the natural and ordinary meaning of "the goods" in the present case means the goods actually on board Caloric.'). The INCOTERMS' equivalent of appropriation appears to be the seller's duty to give notice of delivery: see Ramberg, J., supra fn 85, at pp. 111 and 120.

95. For example, buyer's profit margin in the light of its sub-sale contract. See, e.g., Coastal (Bermuda) Petroleum Ltd v. VTT Vulcan Petroleum SA (No 2) (The 'Marine Star'), supra fn 92.

96. Article 7 CISG.

97. See Bridge, supra fn 71, at pp. 547-548.

98. Article 9(2) CISG.

99. Section 13 SGA; see also Bridge, M.G., supra fn 71, at p. 50 ('s 13 (description) has come to mean in modern times that the goods supplied must conform in terms of identity, which is narrower than the sum of every descriptive attribute broadly understood, to the goods stipulated in the contract [...]. Although earlier strict decision stand in need of reappraisal in modern times, the identity of goods has a broader meaning in the field of international commodity sales than it would have in a conventional domestic sale. In a contract for the sale of No 2 amber durum wheat shipment from a Gulf of Mexico port of the seller's choice, each element in this description would therefore constitute part of the identity of the goods').

100. Coastal (Bermuda) Petroleum Ltd v VTT Vulcan Petroleum SA (No 2) (The 'Marine Star'), supra fn 92; Benjamin's, supra fn 70, at p. 1612.

101. Bridge, M.G., supra fn 45, at p. 58.

102. Takahashi, K., "Right to Terminate (Avoid) International Sales of Commodities" (2003) Journal of Business Law 102, at p. 116; also Mullis, A.C.L., supra fn 74.

103. For the definition and explanation of the functions of a notice of appropriation, see, e.g., Benjamin's, supra fn 70, at p. 1472: 'The contract of sale may expressly require the seller to give a notice of appropriation, or to "declare" a shipment made under the contract, or to give a "notice of nomination"' i.e. one declaring the name of the ship carrying the goods which he has appropriated to the contract. One object of such a requirement is to give the buyer advance notice of the shipment so as to make it possible for him to contract to resell the goods before shipping documents are actually tendered to him. Even where the buyer does not intend to resell the goods, a "notice of nomination" may be important to him (e.g. in the oil business) to enable him to make the necessary berthing and discharging arrangements".

104. R &H Hall, Ltd v. W H Pim, Junr, & Co, Ltd [1928] 30 Lloyd's Rep 159, at p. 161.

105. That is to say, that a trader, for example, expects not just 5 tonnes of wheat, but 5 tonnes of wheat on a named vessel going to a specified destination.

106. That is, by reference to the innocent party's actual loss; this could be the seller's loss of profit (e.g., loss of volume), the buyer's loss of profit from inability to resell the goods or to use them in its manufacturing activity and to sell the final product (for a detailed discussion, see Saidov, D., supra fn 1, at pp. 225-228).

107. CIETAC Arbitration proceeding, 15 November 1996, available at: <http://cisgw3.law.pace.edu/cases/961115c1.html>.

108. For another case of the adjustment of price under Art 75 CISG, see CIETAC Arbitration proceeding, 8 November 2002, available at: <http://cisgw3.law.pace.edu/cases/021108c1.html>.

109. See sources in supra fn 45; Mullis, A.C.L., supra fn 74; cf. Schlechtriem, P., "Interpretation, Gap-Filling and Further Development of the UN Sales Convention", available at: <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem6.html>; Schwenzer, I., "Avoidance of the Contract in Case of Non-Conforming Goods (Article 49(1)(a) CISG)" (2005-2006) 25 Journal of Law and Commerce 437; Zeller, B., "Commodity Sales and the CISG" in Andersen, C.B. and Schroeter, U.G. (eds.), Sharing International Commercial Law across National Boundaries: Festschrift for Albert H Kritzer on the Occasion of his Eightieth Birthday, 2008, Wildy, Simmonds and Hill, London, at p. 627.

110. Ibid.

111. Goode, R., Kronke, H. and McKendrick, E., Transnational Commercial Law: Text, Cases, and Materials 2007, OUP, Oxford, at p. 730.


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