CISG Advisory Council: Opinion No. 8

Calculation of Damages under CISG Articles 75 and 76

FOOTNOTES

The CISG-AC is a private initiative supported by the Institute of International Commercial Law at Pace University School of Law and the Centre for Commercial Law Studies, Queen Mary, University of London. The International Sales Convention Advisory Council (CISG-AC) is in place to support understanding of the United Nations Convention on Contracts for the International Sale of Goods (CISG) and the promotion and assistance in the uniform interpretation of the CISG.

At its formative meeting in Paris in June 2001, Prof. Peter Schlechtriem of Freiburg University, Germany, was elected Chair of the CISG-AC for a three-year term. Dr. Loukas A. Mistelis of the Centre for Commercial Law Studies, Queen Mary, University of London, was elected Secretary. The founding members of the CISG-AC were Prof. Emeritus Eric E. Bergsten, Pace University School of Law; Prof. Michael Joachim Bonell, University of Rome La Sapienza; Prof. E. Allan Farnsworth, Columbia University School of Law; Prof. Alejandro M. Garro, Columbia University School of Law; Prof. Sir Roy M. Goode, Oxford, Prof. Sergei N. Lebedev, Maritime Arbitration Commission of the Chamber of Commerce and Industry of the Russian Federation; Prof. Jan Ramberg, University of Stockholm, Faculty of Law; Prof. Peter Schlechtriem, Freiburg University; Prof. Hiroo Sono, Faculty of Law, Hokkaido University; Prof. Claude Witz, Université des Saarlandes and Strasbourg University. Members of the Council are elected by the Council. At subsequent meetings, the CISG-AC elected as additional members Prof. Pilar Perales Viscasillas, Universidad Carlos III de Madrid; Professor Ingeborg Schwenzer, University of Basel; Prof. John Y. Gotanda, Villanova University; and Prof. Michael G. Bridge, London School of Economics; Prof. Jan Ramberg served for a three-year term as the second Chair of the CISG-AC. At its 11th meeting in Wuhan, People's Republic of China, Prof. Eric E. Bergsten of Pace University School of Law was elected Chair of the CISG-AC and Prof. Sieg Eiselen of the Department of Private Law of the University of South Africa was elected Secretary.

1. See CISG arts. 45, 61. While Articles 74 through 77 set forth the rules concerning damages, numerous other articles can affect the right to or calculation of damages. See CISG arts. 6, 7, 8, 9, 66, 80, 85, 86, 87, 88.

2. See CISG arts. 74-76. Article 77 provides rules for mitigating damages. See CISG art. 77. Articles 79 and 80 provide certain exemptions from liability. See CISG arts. 79, 80.

3. See H. Stoll & G. Gruber in P. Schlechtriem & I. Schwenzer, Commentary on the U.N. Convention on the International Sale of Goods, 2d edition, Oxford, New York, 2005, art. 74 ¶ 2; J. Honnold, Uniform Law for International Sales, 3d edition, Kluwer, The Hague, 1999, § 403 (citing Treitel, Remedies, 1998, 82).

4. For a discussion of the calculation of damages under Article 74, see CISG-AC Opinion No. 6, Calculation of Damages under CISG Article 74 (Spring 2006).

5. See CISG arts. 75, 76.

6. See P. Huber & A. Mullis, The CISG -- A New Textbook for Students and Practitioners, Sellier, München, 2007, § 13(VII)(1).

7. Articles 75 and 76 also work in conjunction with Article 77. For example, although Article 75 does not require the aggrieved party to conduct a substitute transaction, failure to do so may breach Article 77's obligation to mitigate damages. See Art. 77 CISG; see also Arbitral Award, Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry 6 June 2000, CISG-Online No. 1249 (Pace) (Tribunal noting that an aggrieved buyer did not meet its obligation to mitigate damages due to its failure to avoid the contract and engage in a substitute transaction.). Recovery under Article 76 may also be impacted by Article 77, because the obligation to mitigate damages may require that the aggrieved party engage in a substitute transaction if doing so would concretely establish damages that would be less than those calculated abstractly under Article 76. See Huber & Mullis, The CISG § 13(VII)(3)(b).

8. P. Schlechtriem, Calculation of damages in the event of anticipatory breach under the CISG, 2006, §§ I, III (available at <http://www.cisg-online.ch/cisg/FS%20Hellner.pdf>) ("Schlechtriem, Calculation of damages"); see also CISG-AC Opinion No. 6, Calculation of Damages under CISG Article 74 (Spring 2006).

9. See Schlechtriem, Calculation of damages, op. cit. (stating "the abstract calculation of damages under the market price rule may initially produce odd results if current prices for the goods are decisive" and that "windfall profits could be controlled and avoided to a certain extent under the duty to mitigate damages contained in Art. 77 CISG").

10. See Germany, LG München (Furniture case), 6 April 2000, CISG-Online.ch 665, English translation available at <http://cisgw3.law.pace.edu/cases/000406g1.html>.

11. See CISG art. 75.

12. See id.

13. See Stoll & Gruber, op. cit., art. 75, ¶ 1.

14. See V. Knapp, in C. Bianca & M. Bonnell, Commentary on the International Sales Law, The 1980 Vienna Sales Convention, Giuffrè, Milano, 1987, art. 75 ¶ 2.1. Both the UNIDROIT Principles and the PECL contain provisions similar to Article 75 of the Convention. See UNIDROIT Principles art. 7.4.5; PECL art. 9:506.

15. See CISG art. 55. See Stoll & Gruber, op. cit., art. 76 ¶ 5.

16. See CISG art. 55.

17. See CISG art. 75.

18. See Stoll & Gruber, op. cit., art. 75 ¶ 6; see also Arbitral Award, ICC 8128/1995 (Chemical fertilizer case), CISG-Online.ch 526, English translation available at <http://cisgw3.law.pace.edu/cases/958128i1.html>.

19. See Arbitral Award, ICC 8128/1995 (Chemical fertilizer case), CISG-Online.ch 526, English translation available at <http://cisgw3.law.pace.edu/cases/958128i1.html> (factors such as time constraints on the aggrieved party will be considered in determining whether the price of a substitute transaction was reasonable); see also Stoll & Gruber, op. cit., art. 75 ¶ 6.

20. See Secretariat Commentary, art. 71 [draft counterpart to CISG art. 75], ¶ 4 (available at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-75.html>). The Secretariat Commentary is on the 1978 Draft of the Convention; there exists no official commentary on the CISG. Nevertheless, the Commentary reflects that Secretariat's impressions of the purposes and effects of the Commission's work and provides a helpful analysis of official text of the CISG. See A. Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods, Kluwer, 1990 ("[The Secretariat] Commentaries are the closest available counterpart to an Official Commentary on the Convention and, when they are relevant, constitute the most authoritative citations to the meaning of the Convention that one can find.").

21. See Stoll & Gruber, op. cit., art. 75 ¶ 7.

22. See Secretariat Commentary, op. cit., art. 71 ¶ 5.

23. See, e.g., Germany, OLG Hamburg (Iron molybdenum case), 28 February 1997, CISG-Online.ch 261, English translation available at <http://cisgw3.law.pace.edu/cases/970228g1.html>.

24. See, e.g., Germany, OLG Düsseldorf (Shoe case), 14 January 1994, CISG-Online.ch 119, English translation available at <http://cisgw3.law.pace.edu/cases/940114g1.html> (ruling three months reasonable period for sale of seasonal goods).

25. See Germany, OLG Hamburg (Iron molybdenum case), 28 February 1997, CISG-Online.ch 261, English translation available at <http://cisgw3.law.pace.edu/cases/970228g1.html> (allowing calculation under Article 75 despite no formal avoidance of the contract, when necessary to uphold general fairness under the principle of good faith). See Stoll & Gruber, op. cit., art. 75 ¶ 5.

26. See Germany, OLG Bamberg (Fabric case), 13 January 1999, CISG-Online.ch 516, English translation available at <http://cisgw3.law.pace.edu/cases/990113g1.html> (calculation under Article 75 inappropriate when aggrieved buyer made cover purchase prior to avoiding the contract). In such case, damages may be calculated under Article 74.

27. See Knapp, op. cit., art. 76 § 2.4; see Honnold, op. cit., § 410.1.

28. See Secretariat Commentary, op. cit., art. 71 ¶¶ 3-4.

29. See id. at ¶ 4.

30. See id. at ¶ 6.

31. See Knapp, op. cit., art. 75 § 2.6.

32. See Germany, OLG Hamm (Frozen bacon case), 22 September 1992, CISG-Online.ch 75, English translation available at <http://cisgw3.law.pace.edu/cases/920922g1.html> (declaring that Article 76 should be used in this circumstance).

33. See id.

34. See Stoll & Gruber, op. cit., art. 75 ¶ 9.

35. See id.

36. See CISG art. 75. One commentator notes that "this solution would create unnecessary uncertainty and is too far from the wording of the provisions which clearly points to either Art. 76 or Art. 74 CISG in those cases." Huber, op. cit., § 13(VII)(2)(a)(bb) Fn.1051.

37. See Stoll & Gruber, op. cit., art. 75 ¶ 9.

38. See Secretariat Commentary, op. cit., art. 71 ¶ 6. While neither the UNIDROIT Principles nor the PECL expressly address the issue of how to calculate damages when the substitute transaction is unreasonable, their structures for calculating damages are analogous to the Convention and lead to the conclusion that the same result would be reached under these instruments. See UNIDROIT Principles arts. 7.4.1-7.4.6; see PECL arts. 9:506-9:507.

39. See Honnold, op. cit., § 415.

The UNIDROIT Principles and the PECL both provide that where the market price damage formula does not give the aggrieved party the "benefit of the bargain," that party may seek additional damages. See UNIDROIT Principles art. 7.4.6; see PECL art. 9:507. The American Uniform Commercial Code (U.C.C.) allows for recovery of incidental damages and consequential damages (including lost profits) when the market price damage formula does not make the promisee whole. See U.C.C. § 2-708(2); see also U.C.C. §§ 2-706, 2-712.

40. See Stoll & Gruber, op. cit., art. 75 ¶ 10; see Flechtner, Remedies under the New International Sales Convention: The Perspective from Article 2 of the U.C.C., 8 J.L. & COM. pp. 53, 97-107 (1988) at 53, 95.

41. See Australia, Downs Investments v. Perwaja Steel, Supreme Court Queensland, 17 November 2000, CISG-Online.ch 587 (awarding seller cost associated with chartering new vessel to deliver goods to substitute buyer).

42. See Stoll & Gruber, op. cit., art. 75 ¶ 10; see also United States, Delchi Carrier S.p.A. v. Rotorex Corp., U. S. Court of Appeals (2d Circuit), 6 December 1995, CISG-Online.ch 140 (noting that labor expenses associated with plant shutdown due to breach might be available if they were variable costs).

43. See Germany, LG Krefeld (Shoe case), 28 April 1993, CISG-Online.ch 101 ("Further damages awarded to the seller included the attorney's fees the seller incurred to declare the contract avoided, the interest the seller paid for loans, and the loss it suffered from the devaluation of the Italian Lira since the date on which the buyer should have paid originally.").

44. See Switzerland, HG Aargau (Cutlery case), 26 September 1997, CISG-Online.ch 329, English translation available at <http://cisgw3.law.pace.edu/cases/970926s1.html> (awarding, in case where buyer breached by refusing to accept goods when tendered, further damages that included purchase price of goods which seller could not resell and transportation costs for unsuccessful tender); see also United States, Delchi Carrier S.p.A. v. Rotorex Corp., U. S. Court of Appeals (2d Circuit), 6 December 1995, CISG-Online.ch 140 (awarding damages for shipping, customs, and incidentals related to rejection and return of defective goods).


45. See Arbitral Award, ICC 8128/1995 (Chemical fertilizer case), CISG-Online.ch 526, English translation available at <http://cisgw3.law.pace.edu/cases/958128i1.html> (awarding, in case where buyer supplied the breaching seller with custom sacks to be used in the delivery of the goods, costs of new sacks used in substitute transaction); see also United States, Delchi Carrier S.p.A. v. Rotorex Corp., U. S. Court of Appeals (2d Circuit), 6 December 1995, CISG-Online.ch 140 (awarding damages relating to machinery only purchased for use with undelivered goods).

46. See Stoll & Gruber, op. cit., art. 75 ¶ 11.

47. See Germany, LG München (Furniture case), 6 April 2000, CISG-Online.ch 665, English translation available at <http://cisgw3.law.pace.edu/cases/000406g1.html>.

48. See id.

49. See Germany, OLG Hamburg (Jeans case), 26 November 1999, CISG-Online.ch 515, English translation available at <http://cisgw3.law.pace.edu/cases/991126g1.html> (citing danger of double recovery).

50. See Stoll & Gruber, op. cit., art. 75 ¶ 11.

51. See generally Official Comment to UNIDRIOT Principles, art. 7.4.5 ¶ 1.

52. See CISG art. 76(1); cf. U.C.C. §§ 2-708(1) (seller's market price damages), 2-713 (buyer's market price damages); see also Flechtner, op. cit., at 99 (discussing the differences between the U.C.C.'s manner for measuring market price damages and method set forth in the CISG).

53. As noted, an aggrieved party may alternatively seek recovery under Article 74. However, as Peter Schlechtriem pointed out, in some cases it may be more advantageous for an aggrieved party to seek damages under Article 76. See Schlechtriem, Calculation of damages, op. cit., § III ("The market price rule has great advantages for the aggrieved parties in transborder cases especially, for it dispenses with proving concrete damages and, thereby, avoids the hazards of diverging domestic procedural rules on taking and evaluating of evidence, e.g., as to who acts as fact-finder (jury or judge) or what degree of probability constitutes full proof, i.e. reasonable or 99% certainty, or whether the judge has discretion to estimate the aggrieved party's damages, such as under § 287 German Code of Civil Procedure.").

54. See CISG art 76.

55. See Germany, OLG Hamm (Frozen bacon case), 22 September 1992, CISG-Online.ch 75, English translation available at <http://cisgw3.law.pace.edu/cases/920922g1.html> (noting that in the presence of a substitute transaction, concrete calculation of damages under Article 75 prevails over abstract calculation under Article 76).

56. See Stoll & Gruber, op. cit., art. 76 ¶ 1.

57. See Secretariat Commentary, op. cit., art. 72 [draft counterpart of art. 76 CISG] ¶ 2.

58. See E.A. Farnsworth, Farnsworth on Contracts, 3d edition, Aspen, New York, 2004, p. 252; see also P. Schlechtriem, Uniform Sales Law -- The UN-Convention on Contracts for the International Sale of Goods, Manz, Vienna, 1986, p. 97.

59. See Knapp, op. cit., art. 76 § 2.4. See also J. Ziegel, The Remedial Provisions in the Vienna Sales Convention: Some Common Law Perspectives, in N. Galston & H. Smit, eds., International Sales: The United Nations Convention on Contracts for the International Sale of Goods, M. Bender, New York, 1984, § 9.05.

60. The UNIDROIT Principles Article 7.4.6 contains a provision analogous to Article 76. See UNIDROIT Principles art. 7.4.6; Official Comment to UNIDROIT Principles, art. 7.4.6 ¶ 1. See also Arbitral Award, ICC 8502 (Rice case), 1 November 1996, CISG-Online.ch 1295 (discussing CISG art. 76 and UNIDROIT Principles 7.4.6). Similarly, the PECL also contains a provision for calculating damages abstractly. See PECL art. 9:507.

61. See CISG art. 76(1).

62. See Stoll & Gruber, op. cit., art. 76 ¶ 3.

63. See Schlechtriem, Calculation of damages, op. cit., §§ IV. 1, 3(b).

64. See id.

65. See Stoll & Gruber, op. cit., art. 76 ¶ 5; see also Summary of Records of Meetings of the First Committee, 37th Meeting, Consideration of the Report of the Drafting Committee to the Committee, Article 71 and 72 [became CISG article 75 and CISG article 76], 7 April 1980, available at <http://www.cisg.law.pace.edu/cisg/firstcommittee/Meeting37.html>.

66. See Estonia, Tallinna Ringkonnakohus (Novia Handelsgesellschaft mbH v. AS Maseko), 19 February 2004, CISG-Online.ch 826, English translation available at <http://cisgw3.law.pace.edu/cases/040219e3.html> (holding seller was required to provide adequate proof as to existence of current price for tomato paste in order to recover damages under Article 76).

67. See Knapp, op. cit., art. 76 § 3.3; see also Official Comment to UNIDROIT Principles, art. 7.4.6 ¶ 2 ("This will often, but not necessarily, be the price on an organised market.").

However, "goods which are made under special order by the buyer" may necessitate that damages be calculated under Article 74 instead of Article 76. See F. Enderlein & D. Maskow, International Sales Law, Oceana, New York, 1992, art. 76 § 2.

68. See Germany, OLG Celle (Vacuum cleaners case), 2 September 1998, CISG-Online.ch 506, English translation available at <http://cisgw3.law.pace.edu/cases/980902g1.html> (stating "[t]he current price is the price that is generally charged for goods of the same kind in the respective industry under comparable circumstances"); see also B. Nicholas, The Vienna Convention on International Sales, 105 L.Q. Rev. 230, 1989, Fn. 30. To determine if the goods are comparable, a tribunal may look to CISG Article 35, which sets forth the requisite factors for conforming goods. Cf. Arbitral Award, ICC 8740 (Russian coal case), 1 October 1996, CISG-Online.ch 1294.

69. See Arbitral Award, ICC 8740 (Russian coal case), 1 October 1996, CISG-Online.ch 1294. The Comment to the UNIDROIT Principles Article 7.4.6 explains that "current price" is the price is determined in comparison with the price that is generally charged for the same or similar goods or services. Evidence of the current price may be obtained from professional organizations and chambers of commerce, among other sources. See Official Comment to UNIDROIT Principles art. 7.4.6 ¶ 2. Although the PECL provides for the recovery of damages equal to the difference between contract price and the current price, it does not define that term in the text or in the comment and notes. See PECL art. 9:507.

70. See Arbitral Award, CIETAC (Silicon and manganese alloy case), 1 February 2000, CISG/2000/01, English translation available at <http://cisgw3.law.pace.edu/cases/000201c1.html> (appropriate to apply a percentage reduction when current price is based on goods of superior quality to those of avoided contract). See Arbitral Award, CIETAC (Silicate-iron case), 18 April 1991, CISG/1991/01, English translation available at <http://cisgw3.law.pace.edu/cases/910418c1.html> (inappropriate to use published price of goods that did not incorporate the same delivery terms as the avoided contract).

71. See Stoll & Gruber, op. cit., art. 76 ¶ 11. The 1978 Draft Convention (Article 72(1)) referred to the moment the injured party first could have declared avoidance as the reference point for the time of avoidance. This was designed to prevent the aggrieved party from speculating at the other's expense. This language, however, was found objectionable because it was too uncertain and gave too much discretion to courts that would interpret this provision, particularly in cases of anticipatory breach. See Knapp, op. cit., art. 76 §§ 2.9.1-2.9.3.

72. Neither the UNIDROIT Principles nor the PECL contain language as detailed as Article 76 on determining the time at which the current price is to be established. Both provide that the current price is to be determined at the time the contract is terminated. See UNIDROIT Principles art. 7.4.6; see PECL art. 9:507.

Article 2 of the U.C.C. normally measures the seller's market price damages at the time for tender and the buyer's damages at the time the buyer learned of the breach. However, if the breach is an anticipatory repudiation and the action comes to trial before the repudiator's performance is due, the U.C.C. market price damages are measured at the time the aggrieved party learned of the repudiation. See Flechtner, op. cit., at 99-100.

73. See Stoll & Gruber, op. cit., art. 76 ¶ 11.

74. Flechtner, op. cit., at 99. This double test was apparently adopted because some delegates felt that the test in the draft article (the time when the aggrieved party first had the right to avoid the contract) was too vague, and because others were concerned that the substitution of the time of actual avoidance might enable the aggrieved party to postpone avoidance to take advantage of a fluctuating market. On the other hand, the time of delivery was not generally suitable either because there might not have been any delivery as in the case of an anticipatory repudiation. Thus, the final text of Article 76 was regarded as an appropriate compromise. See J. Ziegel in Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods, 1981 (available at <http://cisgw3.law.pace.edu/cisg/text/ziegel76.html>).

75. See Schlechtriem, Calculation of damages, op. cit., Preliminary Remarks.

76. See id., §§ III(2)(c), (d).

77. See Secretariat Commentary, op. cit., art. 71 ¶ 4.

78. CISG art. 76.

79. Article 31 states:

 If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists:
(a) if the contract of sale involves carriage of the goods -- in handing the goods over to the first carrier for transmission to the buyer;
(b) if, in cases not within the preceding subparagraph, the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at, a particular place -- in placing the goods at the buyer's disposal at that place;
(c) in other cases -- in placing the goods at the buyer's disposal at the place where the seller had his place of business at the time of the conclusion of the contract.

Article 31 differentiates between ordinary sales and sales involving the carriage of goods. When the contract of sale involves the carriage of goods, the place of delivery will be the place where the seller hands over the goods to the first carrier for transmission to the buyer. In a case between an Italian buyer and a Swiss seller, for example, an Italian court held the place of performance was England, since the goods had been delivered to a carrier in Sheffield. See Italy, Tribunale di Reggio Emilia (Industrial machinery case), 3 July 2000, CISG-Online.ch 771, English translation available at <http://cisgw3.law.pace.edu/cases/000703i3.html>; see also Netherlands Hoge Raad, 26 September 1997, CISG-Online.ch 286.

80. CISG art. 76(2). Under U.C.C. §§ 2-708(1) and 2-713(2), market price damages are measured at the place of tender for the seller and, in many cases, also for the buyer. See U.C.C. §§ 2- 708(1), 2-713(2) (1978). However, U.C.C. § 2-713(2) measures the market price at the place of arrival where the buyer has rejected or revoked acceptance after the goods arrived. See U.C.C. § 2- 713(2).

81. See Enderlein & Maskow, op. cit., art. 76 § 11.

82. See Knapp, op. cit., art. 76 § 3.4.

83. See Stoll & Gruber, op. cit., art. 76 ¶ 10.

84. See Enderlein & Maskow, op. cit., art. 76 § 11.

85. See Honnold, op. cit., § 413.

86. See Knapp, op. cit., art. 76 § 3.7.

87. See Secretariat Commentary, op. cit., art. 72 ¶ 8.

88. See Knapp, op. cit., art. 76 § 2.7.

89. It is assumed that this case does not involve lost volume sales.

90. See Stoll & Gruber, op. cit., art. 76, n. 39.

91. See id. The promisee must have attempted to mitigate this loss under Article 77 in order to recover.

92. This assumes that the damages were foreseeable and the aggrieved party undertook appropriate mitigation efforts.

93. See id., art. 75 ¶ 11.