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CISG
number
77


LEGISLATIVE HISTORY
1980 Vienna Diplomatic Conference

Summary Records of Meetings of the First Committee

30th meeting

Monday, 31 March 1980, at 3 p.m.

Chairman: Mr. LOEWE (Austria)

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Article 73 [became CISG article 77 ]

[United States (A/CONF.97/C.1/L.228):

Revise the second sentence of article 73 [became CISG article 77 ] to read as follows:

"If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount which should have been mitigated, or a corresponding modification or adjustment of any other remedy."]

55. Mr. HONNOLD (United States of America), introducing his delegation's amendment to article 73 [became CISG article 77 ] (A/CONF.97/C.1/L.228), said that the principle stated in article 73 [became CISG article 77 ], whereby the party who relied on a breach of contract was required to take such measures as were reasonable in the circumstances to mitigate the loss, was an important general principle. However, article 73 [became CISG article 77 ] was not very clear as it stood, for it might lead to the conclusion that if the injured party failed to take such measures, the party in breach could only claim a reduction in the damages and could not rely on such failure in connection with the other remedies open to him, for example, the right to reduce the price. That restrictive conception of the obligation to mitigate the loss might have very questionable results. For example, a buyer might realize, shortly after placing an order, that he would be unable to use the goods; he therefore proposed to the seller that he should pay him damages and asked him not to go ahead with the order; but the seller ignored his request and used materials and labour in producing the goods. If the seller then resold the goods and subsequently claimed damages from the buyer, the principle in article 73 [became CISG article 77 ] according to which the seller was required in such cases to take measures to mitigate his loss would naturally apply. On the other hand, if the seller claimed the price of the goods from the buyer, under a strict interpretation of the existing article 73 [became CISG article 77 ] that principle would not operate and the seller would be able to claim the full price. His delegation's amendment was therefore intended to prevent such a narrow and mistaken interpretation of the principle of mitigation of loss.

56. Mr. NICHOLAS (United Kingdom) endorsed the arguments put forward by the United States representative. In its present form, the provision might in fact be used by an unscrupulous party to get out of his obligations. It should therefore be amended.

57. The CHAIRMAN questioned whether article 73 [became CISG article 77 ], if amended in the way proposed by the United States representative, would still be in the right place in section IV, which dealt with damages.

58. Mr. HONNOLD (United States of America) thought that, rather than moving the amended article 73 [became CISG article 77 ] elsewhere, it would be better to broaden the scope of section IV on damages, for example by entitling it "Damages and reduction of damages".

59. Mr. KRISPIS (Greece) supported the United States amendment, which filled a gap in the Convention. He wondered whether the words "which should have been mitigated" in the second and third lines of the amendment ought not to be replaced by the words "which could have been mitigated".

60. Mr. HERBER (Federal Republic of Germany) considered that the United States proposal was useful in theory, but liable to make for confusion. The considerations set forth in respect of damages were presumably equally valid for a reduction in the price, but in using the expression "any other remedy", the United States proposal was possibly seeking to cover a far wider field, including, for example, the right to declare the contract avoided. It was hard to see how there could be an adjustment in that case. It was conceivable that, in the absence of measures to mitigate the loss, the right to declare the contract avoided might be abrogated, but such situations did not come under article 73 [became CISG article 77 ]. He asked the United States representative if it would not suffice to refer in the amendment to the right to a reduction in the price. He was unable, moreover, to support the Greek representative's suggestion.

61. Mr. ALKIN (Ireland) asked the United States representative whether he did not think that the first sentence of the existing text provided a satisfactory answer to the point raised by him. The proposed addition to the second sentence would merely seem to indicate a series of possibilities of action.

62. Mr. HONNOLD (United States of America) thought it would not be enough to mention the right to a reduction in the price, as suggested by the representative of the Federal Republic of Germany. That was a limited remedy applicable only in particular situations. The question of whether and how the principle of the mitigation of loss would apply in the event of avoidance of the contract was of purely theoretical interest.

63. Matters would be simpler if he could in fact consider, as the Irish representative had suggested, that the first sentence of the text proclaimed a principle generally applicable to the various remedies provided for in the Convention. But he doubted whether the second sentence would be interpreted as furnishing the means for implementing that principle. Every care must be taken to avoid a narrow interpretation and to ensure that the principle of the mitigation of loss through reasonable measures had as broad a scope as possible.

The meeting was suspended at 4:30 p.m. and resumed at 4:50 p.m.

64. Mr. ZIEGEL (Canada) said that the wording of article 73 [became CISG article 77 ] and the relationship between that article and the provisions of the Convention dealing with specific performance created difficulties for him. Article 73 [became CISG article 77 ] only applied to cases where a party relied on a breach of contract; in those cases, and in those cases only, the party concerned was required to take measures to mitigate the loss. However, if the seller or the buyer wished to require performance of the contract, he did not rely on a breach, and the situation was reversed.

65. According to the reasoning of the United States representative, if an innocent party was obliged to accept the repudiation of an obligation, it was not entitled to require specific performance. That point of view might, perhaps, be in line with the practice in common law countries, but it was not in line with the principles underlying the Convention, according to which the buyer and the seller had an absolute right to require specific performance so long as they had not had recourse to inconsistent remedies. In the case cited by the United States representative, the seller had not had recourse to such remedies; he simply wished to exercise his right to performance of the contract, which no provision in the Convention denied him. The United States amendment was liable to create difficult problems in connection with specific performance. If, on the other hand, it did not affect specific performance, it was difficult to see what it added to article 73 [became CISG article 77 ].

66. Mr. HJERNER (Sweden) said that, while he understood the reasons for the United States proposal, he could not accept it. He shared the viewpoint of the Canadian representative. The United States proposal would limit the seller's right to require performance and would give the buyer a unilateral right to avoid the contract.

67. Mr. MANTILLA-MOLINA (Mexico) said he was against the United States proposal, which he thought ill-advised. Its wording was somewhat vague and the substance unacceptable. The idea it introduced should be the subject of a separate article relating to the price and cases in which there was a reduction in the price. That question differed fundamentally from the one dealt with in article 73 [became CISG article 77 ], which was concerned solely with a reduction in the damages. In the case cited by the United States representative, the fact that the buyer changed his mind did not constitute avoidance of the contract and the seller was entitled to proceed with manufacture since nothing had released him from his obligations. It was reasonable that the seller should seek to recover the price, and it would be unreasonable if, as proposed by the United States, the price could be reduced. He did not see why there should be such a reduction, since the seller had not committed any wrong, or how it would be determined.

68. Mr. BOGGIANO (Argentina) said that he was unable to support the United States proposal. According to the present wording of article 73 [became CISG article 77 ], it was the party relying on a breach of contract who must take measures. The scope of the article was limited to that party. Article 73 [became CISG article 77 ] applied solely to the amount of the reduction in the damages. But the United States proposal referred to "any other remedy"; such remedies might include various declarations or measures which were quite unforeseeable. That was where the difficulty lay, for it was impossible for the Committee to take a decision on such a vague and imprecise proposal which provided for measures that were not quantifiable.

69. Mrs. KAMARUL (Australia) said she supported the United States proposal, which she considered balanced and justified. The existing text of article 73 [became CISG article 77 ] needed to be clarified.

70. Mr. HONNOLD (United States of America) said that, despite the misgivings voiced by some representatives, his country's amendment would not amount to a general restriction of the right to require specific performance or recover the price. It must be remembered that the scope of article 73 [became CISG article 77 ] was extremely limited. Nor would it limit full protection for the innocent party. When that article applied, the party in breach was entitled to the full amount of damages, including the amount corresponding to the loss of profit, and when it did not apply, the party would be entitled to take steps to secure specific performance or payment of the price. In some civil law countries, cases involving wastage of labour and materials would be covered by the rules on good faith. The Convention did not contain any general provision on that subject, and the amendment, by providing that appropriate action must be taken to mitigate the loss and avoid wastage, would give expression to that concept of good faith.

71. Mr. FOKKEMA (Netherlands) said that he fully understood the thinking of the United States delegation. He, too, considered that something must be done, but the means selected did not seem to him to be the best. The case presented by the United States was not characteristic of the contracts covered by the Convention, but came within its purview through article 3 [became CISG article 3 ], which stated that contracts for the supply of goods to be manufactured or produced were to be considered sales. In countries which applied the French civil code, the customer was free to terminate the work provided he paid the other party what was due to him under the contract. His country would be willing to agree to a new provision being inserted in the Convention to the effect that the buyer had the right to avoid the contract provided he paid the costs. But the United States proposal was based on a different idea and confused various principles. If article 73 [became CISG article 77 ] was to be applied, it would be necessary to determine first, at what time there was non-performance. The situation would differ, depending on whether non-performance was considered to have arisen after the decisive moment when the buyer had declared that he would not take delivery of the goods or whether the buyer was not entitled to declare that he did not wish the work to continue; non-performance then assumed a different aspect. The solution proposed was not satisfactory, and another should be found.

72. Mr. VINDING KRUSE (Denmark) freely acknowledged that cases arose in which there was a loss in respect of labour, raw materials or transport, but it was very difficult to deduce from the formula proposed by the United States delegation that those were the cases envisaged. The Netherlands representative's suggestion did not seem to provide a very satisfactory solution either.

73. Mr. SCHLECHTRIEM (Federal Republic of Germany) thought the United States proposal justified in so far as it related solely to a reduction in price. Beyond that however the wording was too general and hence dangerous, for the courts would have every latitude to interpret and modify the terms of the contract.

74. Mr. HONNOLD (United States of America) asked whether it would be possible to set up a small working group of those members of the Committee who supported the idea behind his proposal in order to arrive at a more acceptable formulation.

75. The CHAIRMAN thought that the Committee should first vote on the idea behind the proposal.

76. Mr. KRISPIS (Greece) said that he would abstain. Although he had been ready to accept the United States proposal at first, after the discussion he was no longer sure that it did not entail some risks, such as those pointed out by the representative of the Federal Republic of Germany.

77. The CHAIRMAN explained that the idea of the United States proposal was to extend the application of the rule set forth in the second sentence of article 73 [became CISG article 77 ] to cases involving not only damages, but also some other consequences of the breach of contract, such as losses in respect of raw materials, labour, transport, etc. He invited the Committee to vote purely on the principle behind the United States proposal (A/CONF.97/C.1/L.228).

78. The principle behind the United States proposal was rejected by 24 votes to 8.

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