Go to Database Directory || Go to full text of "Remedies for Non-performance ..."


Excerpt from

Remedies for Non-performance:

Perspectives from CISG, UNIDROIT Principles & PECL

Chengwei, Liu [*]
September 2003

[...]

CHAPTER 14. LIMITS TO CLAIMS FOR DAMAGES

14.1 General Considerations
14.2 Foreseeability of Loss
        14.2.1 In General
        14.2.2 Test for Foreseeability
        14.2.3 Party Concerned and Reference Point
        14.2.4 Evaluation of Foreseeability
        14.2.5 Content of Foreseeability
        14.2.6 Concluding Remarks
14.3 Certainty of Harm
14.4 Contribution to Harm
        14.4.1 In General
        14.4.2 Ways of Contributing to the Harm
        14.4.3 Remedies Affected by the Contribution
    14.4.3.1 Remedies available upon non-performance caused solely by the contribution
    14.4.3.2 Damages proportionately reduced due to partial contribution
14.5 Duty to Mitigate
        14.5.1 In General
        14.5.2 Reasonable Measures Taken
        14.5.3 Effects of Failure to Mitigate

     While it is encouraging to see broader protection for the injured party, limiting the liability of the breaching party may also be desirable under some circumstances. It is not always wise to make the defaulting promisor pay for all the damage which follows as a consequence of his breach. The principle, which is common to many legal systems, is that of limiting the contractual liability of the party in breach.[1]

14.1 GENERAL CONSIDERATIONS

Based on the idea that the recovery of damages cannot be unlimited, the purpose of using the methods of limiting damages is to restrict the liability in damages. This purpose makes the issue of limiting damages an integral part of the general measure of damages. In this respect, it is to be noted that the respective techniques limiting damages vary depending on the principles established in particular legal systems.

Generally speaking, the limits of recovery are in part derived from the conditions of the non-performing party and in part from circumstances of the aggrieved party. On the one hand, most legal systems often give special consideration to the non-performing party and limit damages out of consideration for it. They do so by a great variety of techniques such as requiring that the non-performing party was at fault; or that he foresaw or could have foreseen the loss; or that he "adequately" caused the loss.[2] On the other hand, with regard to those limitations of recovery which are derived from the conditions of the aggrieved party, two types of loss clearly stand out: the first is loss suffered by the aggrieved party which results from his own unreasonable behavior or his failure to take reasonable steps to mitigate his loss; and the second ground for limiting recovery is the presence of savings or gains which result from the breach of contract (see Chapter 13).

These two heads of limiting the aggrieved party's loss and therefore of his compensation seem to be very widely recognized. For example, the CISG has adopted the Anglo-American foreseeability test (Art. 74). By contrast, the CMEA General Conditions for Deliveries combine the requirements of a causal connection and of fault on the part of the non-performing party ( 67 D(1)(c) and (d), (2) and (3)). And the aggrieved party's burden of mitigating the loss is also expressly spelt out in the uniform laws. However, in view of the great diversity of approaches it is not yet possible to explain and compare all of these various approaches towards the limiting of damages. For this reason, the author will focus below on those well-known methods such as foreseeability, certainty, mitigation and contribution as adopted under the three instruments.

14.2 FORESEEABILITY OF LOSS

14.2.1 In General

One of the methods of limiting damages, which has received an extensive application in various legal systems and international acts, is the principle of foreseeability, or so-called contemplation principle. This principle has a long history. It was first established in Roman law. Much later, it was established in the Code Napoleon and, consequently, adopted by a number of legal systems. This rule has been adopted by the Common law as well. It was established in a famous case Hadley v. Baxendale and further restated in Victoria Laundry v. Newman Industries.[3]

Considering numerous versions of foreseeability in particular legal systems,[4] it is decided in this section to focus on such a test as similarly established under the three studied instruments. In this respect, the second sentence of Art. 74 CISG closely resembles the common law foreseeability requirement: "Damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract." It is also adopted in the two Principles. Art. 7.4.4 UPICC prescribes that: "The non-performing party is liable only for harm which it foresaw or could reasonably have foreseen at the time of the conclusion of the contract as being likely to result from its non-performance." Art. 9:503 PECL stipulates that: "The non-performing party is liable only for loss which it foresaw or could reasonably have foreseen at the time of conclusion of the contract as a likely result of its non-performance, unless the non-performance was intentional or grossly negligent."

Clearly, these provisions cited above resemble in substance. I, therefore, will focus on the approach taken on by the CISG, with a comparison with the other instruments where the approach developed or worded differently. According to the second sentence of Art. 74 CISG, "the only damages that must be compensated are those which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract. [...] The underlying idea is that the parties, at the conclusion of the contract, should be able to calculate the risks and potential liability they assume by their agreement."[5] This rule encourages the injured party to disclose any special circumstances and is therefore consistent with the cooperation and communication goals. It is also consistent with the purpose of not penalizing a breaching party who did not know of special circumstances and could not take special precautions.[6]

Texually speaking, in considering ways to limit the liability of the breaching party under Art. 74 CISG, there is "seven clauses" referred to as "bare bones" which a court must analyze. These clauses are: "Such damages may not exceed" the loss which "the party in breach" "foresaw or ought to have foreseen" "at the time of the conclusion of the contract" in light of the "facts and matters of which he then knew or ought to have known" "as a possible" "consequence of the breach of contract".[7]And in the following paragraphs the author will selectively lucubrate into some of these "bare bones".

14.2.2 Test for Foreseeability

It is clear that the second sentence of Art. 74 CISG provides for both subjective and objective standards with respect to foreseeability by using the wording "foresaw or ought to have foreseen". What is meant here is to foresee subjectively, but the Convention does not stop at that. Insofar as damage is a completely normal consequence of a breach of contract, it should have been foreseen.[8]

In order to determine the foreseeability, it will be sufficient to prove either that the party actually foresaw the loss, or was objectively in a position to foresee it. Therefore, it is not necessary to prove that the party in breach actually foresaw the loss. The proof of an objective element will be sufficient to make the party liable for loss.[9] However, such liability may be restricted on the basis of a reasonable allocation of risks under the contract. In particular, it is not quite exact to state that the subjective foreseeability does not matter. Subjective foreseeability plays a role when the resulting loss is above what would have been regarded as the normal measure by any reasonable person, but actually was foreseen by the party in breach.[10] On the other hand, "it may explicitly or implicitly follow from the terms of the contract that certain losses should not be covered by the party's liability, even though they were foreseen or objectively foreseeable."[11]

In short, the breaching party would be liable when proved either that the party actually foresaw the loss, or was objectively in a position to foresee it, in consideration of particular circumstances. To clarify this double test, there are more details needed discussing in the following paragraphs.

14.2.3 Party Concerned and Reference Point

The first question is: who is required to foresee or to be in a position to foresee? It is said that "foreseeability, as understood in Article 74, depends on the knowledge of facts and matters which enable the party concerned to foresee the results of the breach".[12]

In this regard, it's only "the party in breach" whose knowledge matters. This is clearly shown by the wording in Art. 74 "the loss which the party in breach foresaw or ought to have foreseen". This position is somewhat different in English law. In particular, in Hadley v. Baxendale, the requirement was that the loss be "in the contemplation of both parties".[13] What's the idea underlying this formula of Art. 74 in stating that it is only "the party in breach" who is required to foresee or to be in a position to foresee? It is said that, "[t]he C.I.S.G. article, in limiting reference to the party in breach, surely does not envision delivering a windfall to the plaintiff, because the plaintiff recovers something not foreseen. Rather, this language reflects the view that the focus should be on the party who will have to answer for the amount of the loss."[14]

Then the second issue arises: What's the relevant time for evaluation of foreseeability? Adopting the same position as that set out in the Hadley rule or English law (where the relevant time for evaluation of foreseeability is generally the time of making the contract), Art. 74 CISG directly refers foreseeability to "the time of the conclusion of the contract" for determining what is foreseeable.

It follows: "It is not sufficient that the party in breach could at the time of the delivery of the defective goods or at the time of performance of the non-delivered goods foresee the damage to be caused by the breach of contract. The party in breach rather should have been able to foresee the damage at the time of the conclusion of the contract. He should at the time of the conclusion of the contract be in a position to calculate his risk".[15] Generally, the "at the time" language in Art. 74 seems to be "problem-free", this rule is well settled and has proved remarkably resistant to change.[16] The purpose here is to emphasize the important role played by the time precision in assessing foreseeability. The fact that negotiating leading to the conclusion of the contract may last a certain period of time makes it clear that precision in relation to the time becomes very important. It is therefore to be noted that, careful attention should be paid to the requirements of some legal systems governing the conclusion of contract.

In any event, the moment of the conclusion of the contract is the decisive time in determination of the party's foreseeability. "No possible foreseeability, which may take place after this moment, should have any legal consequences."[17] It is only within such limits of the particular period of time, i.e., the time of the conclusion of the contract, that other important elements of foreseeability will be examined.

14.2.4 Evaluation of Foreseeability

Generally, the terms of the contract, together with knowledge of the party in breach, are among the first important factors in evaluation of foreseeability. Moreover, Art. 6 of the CISG clearly shows that in case there are hesitations as to the sequence or priority of application of these elements, precedence should be given to the "express or implied" intentions of the parties with respect to the terms of the contract. However, the party's actual foresight and the ability to foresee may not always be explicitly reflected in the contract. "It would be more correct to say that foreseeability is partly reflected by the terms of the contract. Besides the contract terms, there are other elements, which are essential in evaluating foreseeability: knowledge and trade usage. These two elements may or may not be explicitly reflected in the contract."[18]

As mentioned above, the foreseeability was established at common law in the famous case Hadley v. Baxendale and further restated in Victoria Laundry v. Newman Industries. In this regard, it was once thought that Hadley v. Baxendale (1854) should be understood as establishing two rules, namely that "the damages should be such as may fairly and reasonably be considered as arising either: a) naturally, i.e. according to the usual course of things from such breach of contract itself; or b) as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach." This test was reformulated in Victoria Laundry v. Newman in what has been referred to as a classic statement of the law: The aggrieved party is only entitled to recover such part of loss actually resulting as was the time reasonably foreseeable as liable to result from the breach. What was at the time so foreseeable depends on the knowledge that the parties had at the time of the conclusion of the contract, or, "at all events", the party in breach had at that time. The two rules of Hadley v. Baxendale become one. There is the imputed knowledge which every reasonable person is taken to know in the ordinary course of things and the actual knowledge of special circumstances of which the contract-breaker was aware at the time of entering into contract.[19]

It follows that under English law, knowledge can be of two kinds: imputed knowledge (which in "the ordinary course of things" is possessed by any reasonable person (regardless of whether the party in breach actually possesses it or not) and actual knowledge (which means knowledge the party in breach actually has of some special circumstances, which lie beyond "the ordinary course of things"). In turn, the CISG does not directly establish the two parts of the Hadley rule, which subsequently gave way to the doctrine of two types of knowledge. Nonetheless, as to be furthered below, analogous subjective and objective standards have been established with respect to the party's knowledge: "the facts and matters of which he then knew or ought to have known". Therefore, such wording is likely to cover "the ordinary course of things" case as well as "the special circumstances" case.[20]

It is here recalled the manifestation of objective and subjective standards with respect to the foreseeability test. What are the standards with respect to the knowledge itself, which has been established as an essential element for evaluation of foreseeability? It suggests that a similar approach has been taken on when Art. 74 uses the wording "in the light of the facts and matters of which he then knew or ought to have known" to define the foreseeability formula. "This wording serves to objectify the foreseeability. What matters is not anymore the actual foreseeability, rather, it is the foreseeability which can be expected from a reasonable party in the same situation."[21]

Interpreting this wording may involve the consideration of several sources as regards the "knowledge" available to the breaching party at the time of the conclusion. From one source, based on a subjective standard: "The party in breach will also be considered as having known the facts and matters enabling him to foresee the possible consequences of the breach, and therefore, as having foreseen them, whenever the other party to the contract has drawn his attention to such possible consequences in due time. Should a party at the time of the conclusion of the contract consider that breach of contract by the other party would cause exceptionally heavy losses or losses of an unnatural nature, he may make this known to the other party with the result that if such damages are actually suffered they may be recovered."[22] Sutton also submits that, a party to a contract that may lead to unusually large losses may want to make these dangers known to the other contracting party in order to implicate the subjective prong of the Art. 74 foreseeability test. It is obvious that a party who fears suffering an extraordinary loss as a consequence of the breach of contract by the other party, should make this known to the latter at the conclusion of the contract so as to enable him to calculate the risk.[23]

However, it is not the only available source. The CISG does not stop at actual knowledge but establish the imputed one as well. This is the other source, from which the breaching party will have the knowledge that merchants in general have. The party in breach will be considered as knowing the facts and matters enabling him to foresee the consequences of the breach of contract if such knowledge generally flows from the experience of a merchant or, in other words, if such knowledge can in the given case be expected of him having regard to his experience as a merchant. "Generally, knowledge, in the light of an objective standard, should be generally imputed to the party in breach if it can be objectively considered that such knowledge is based on the experience of the party as a 'merchant'."[24] At that, the circumstances of a concrete case should be taken into account as well. In this respect, to what extent the party in breach is capable of taking the circumstances into consideration may depend on his position, especially which has been affected greatly by advances today in technology. "Modern business practices (and equipment), accounting methods, and the extensive communication of information make more knowledge available to both parties. This increased knowledge may make potential amounts of loss easier to compute. A potential breacher today will have available a great deal more information about what can happen concerning the contract and hence 'ought to know' a great many more facts than a potential breacher in the nineteenth century."[25]

It seems that in some cases, a trade usage can also serve as an additional factor for evaluation of foreseeability. A trade usage can be relevant for determining both subjective and objective standards with respect to foreseeability.[26] Where a trade usage is relevant in evaluation of foreseeability, the applicability of an objective or a subjective standard of foreseeability can be linked to the grounds provided for in Art. 9 CISG, which contains both subjective and objective grounds for applicability of a usage to the parties' legal relationships.[27]

In this regard, Saidov states as follows: "If a subjective ground is applicable, i.e. if the parties have specifically agreed to a particular trade usage, or established a practice between themselves, or knew of a usage, then such a usage or practice will be likely to determine the actual knowledge of a party in breach. The actual knowledge, in turn, can, on the one hand, establish the actual foresight. On the other hand, the fact that a party actually knew of something does not necessarily mean that he actually foresaw the consequences in question. The actual knowledge can as well lead to the establishment of an objective standard, i.e. that a party, having known of certain conditions, was in a position to foresee the consequences of the breach, but did not in fact foresee them. If an objective ground for applicability of a usage comes into play, then this ground is likely to impute the knowledge of the party in breach. Provided that a party did not actually possess the knowledge, the imputed knowledge will be more likely to lead to determination of an objective foreseeability ('ought to have foreseen'), rather than of an actual foresight. The reason for this conclusion is that it is highly unlikely that a party will actually foresee the consequences if he does not actually have necessary knowledge."[28]

In any event, "in deciding whether the party in breach can be considered as having known 'the facts and matters', a right balance has to be found in relying on available sources. This means that we will need to assess the proportion, in which each of the sources of information can be said to have contributed to the formation of the party's knowledge. However, ultimately, the specific circumstances of a particular case should be decisive."[29]

14.2.5 Content of Foreseeability

The foreseeability established under Art. 74 CISG, directly refers to the loss "as a possible consequence of the breach of contract". "The phrase 'as a possible consequence' appears in Article 74, while Hadley chose 'as a probable result'. [...] Thus the language of the C.I.S.G. ostensibly widens the area of liability imposed upon a breaching party. Hopefully, 'possible' will not cause in international sales cases the same speculation that 'probable' has caused in the British cases."[30]

This makes it clear that, the foreseeability does not refer to a certain sum of money equal to the loss, even though the wording of this rule may suggest it, but to the possibility of a loss as a consequence of the breach of contract as such and the extent of the possible loss.[31 ]It follows that foreseeability is a flexible concept falling within the wide discretion of the judge. What should have been foreseen in each case will often have to be judged retroactively by a court or an arbitral tribunal. Already in the jurisdiction in regard to ULIS, which in Art. 82 contained the same rule of foreseeability, the following cases became apparent: (a) the cost of a substitute transaction and the loss of resale profit are foreseeable; (b) missed uses of the goods to be delivered are also part of the generally foreseeable damage; (c) additional costs for transportation, storage and insurance are also foreseeable; and (d) even the loss of clients of the buyer because of the defect in the goods was characterized as foreseeable. Only the loss suffered from a decline in the currency which occurred as a consequence of the delay in payment was predominantly rejected as not foreseeable.[32]

And with regard to the crucial question on what concrete factors the party in breach had to foresee or ought to have foreseen to be liable for the loss, it is further summarized: "The first such factor is the possibility of the loss. This conclusion flows directly from Article 74, which provides that the loss must be foreseen as 'a possible consequence of the breach'. There is no doubt that the risk of loss is in direct connection with the type of a potential loss. Therefore, the second factor, which the party had to foresee or ought to have foreseen, is the type of the loss. It is further submitted that foreseeability should also relate to the possible extent of the loss (the third factor). The party in breach should not be held liable for the full extent of the loss, if he could not have reasonably foreseen or was not in the position to foresee that such extent would follow from the type of the loss which he foresaw or ought to have foreseen. The party should be liable only to the extent which he foresaw or ought to have foreseen as the possible extent of the loss. It is also to be noted that in evaluating the possible extent of the loss, the manner in which the loss was caused, or the events which led to the loss having acquired the extent in question, can often be decisive. Therefore, arguably, these aspects can be regarded as necessary factors that the party had to foresee or ought to have foreseen to be liable for the extent of the loss in question."[33]

On the other hand, it can be inferred from the wording "as a possible consequence of the breach of contract" that there is a requirement as to the presence of causal link between the breach and the loss. Although the concept of causation in different legal systems gave rise to the development of various theories of causation, the causal link, established in Art. 74, strongly overlaps the foreseeability rule. Thus, a loss may be considered to be caused by an event if the event is appropriate to bring it about and if a third person in the light of general experience and with knowledge of all the facts could have foreseen the possibility of loss. Foreseeability and causation are closely inter-related and hardly does it seem possible to rigidly separate them from each other. Indeed, foreseeability largely consists of an element of causation. Without an understanding of how events can affect each other and of "a degree of uniformity of sequence of events", it would be impossible to foresee anything whatsoever.

However, as criticized by some authors, such an inter-connection cannot serve as a basis to consider the two concepts as mutually exclusive. Nor is it correct to regard foreseeability as being capable, at least on a theoretical level, of fully replacing the potential effect of causation. Causation as a phenomenon exists on its own regardless of our knowledge of the world. It is an objective phenomenon. Therefore, it seems incorrect to bring an objective process, which exists independently of our perception of the world, entirely down to the way a person could foresee the potential causal processes. The foreseeability rule under the CISG includes both subjective and objective standards. The way a person had actually foreseen or been in the position to foresee the potential development of events, at the time of the conclusion of the contract, does not necessarily coincide with the way such a development has, in fact, taken place. Rather, these concepts should supplement and balance each other. The doctrines on foreseeability and causation could be applied in a rather consistent manner and Art. 74 is certainly flexible enough to accommodate an application of general principles.[34]

14.2.6 Concluding Remarks

Under the foreseeability formulae, restricting the extent of the liability of the non-performing party, as provided for in Art. 74 CISG, "the emphasis is on loss which was actually foreseen or which the party ought to have foreseen in the light of circumstances known to him or of which he should have known as a possible consequence of the breach."[35]

What was foreseeable is to be determined by reference to the time of the conclusion of the contract and to the non-performing party itself (including its servants or agents), and the test is what a normally diligent person could reasonably have foreseen as the consequences of non-performance in the ordinary course of things and the particular circumstances of the contract, such as the information supplied by the parties or their previous transactions. This limitation is related to the very nature of the contract: not all the benefits of which the aggrieved party is deprived fall within the scope of the contract and the non-performing party must not be saddled with compensation for harm which it could never have foreseen at the time of the conclusion of the contract and against the risk of which it could not have taken out insurance. Foreseeability relates to the nature or type of the harm but not to its extent unless the extent is such as to transform the harm into one of a different kind. In any event, foreseeability is a flexible concept which leaves a wide measure of discretion to the judge.[36]

Also, it must be noted that, in some legal systems, the limitation of damages by foreseeability as such is restricted when the breach of contract was committed intentionally. Although in general the non-performing party is liable only for loss which it foresaw or ought to have foreseen at the time of the contract, the last part of Art.9:503 PECL, which reads: "The non-performing party is liable only for loss which it foresaw or could reasonably have foreseen at the time of conclusion of the contract as a likely result of its non-performance, unless the non-performance was intentional or grossly negligent", lays down a special rule in cases of intentional failure in performance or gross negligence. In this case the damages for which the non-performing party is liable are not limited by the foreseeability rule and the full damage has to be compensated, even if unforeseeable.[37]

However, no such rule exists in the CISG.[38] The UNIDROIT Principles also stresses that the concept of foreseeability must be clarified since the solution contained therein does not correspond to certain national systems which allow compensation even for harm which is unforeseeable when the non-performance is due to willful misconduct or gross negligence. Unlike certain international conventions, particularly in the field of transport, the UNIDROIT Principles follows the CISG in not making provision for full compensation of harm, albeit unforeseeable, in the event of intentional non-performance. Since the present rule of UPICC Art. 7.4.4, which reads: "The non-performing party is liable only for harm which it foresaw or could reasonably have foreseen at the time of the conclusion of the contract as being likely to result from its non-performance", does not provide for such an exception, a narrow interpretation of the concept of foreseeability is called for.[39] This is also important for the restrictive interpretation of article 74 CISG in the light of the wide phrasing of Art. 74.[40]

14.3 CERTAINTY OF HARM

Another important principle, together with the foreseeability rule, may be assumed from Art. 74 CISG, i.e. the party is not liable for harm which has not occurred and which is not likely to occur, either. The requirement of foreseeability must be seen in conjunction with that of certainty of harm.[41] Such an interpretation is strengthened by the interpretation of Art. 7.4.3 UPICC: "It is submitted that article 7.4.3 of the UNIDROIT Principles may be helpful in interpreting article 74 CISG and to fill the apparent gap which exists. The UNIDROIT Principles clearly accept the principle that the defaulting party is liable for future damages and provide a practical, reasonable and equitable approach for the determination of such damages."[42] "UNIDROIT Principles article 7.4.3 complements CISG article 74 by emphasizing that the existence and extent of the harm to be compensated must be established with a reasonable degree of certainty."[43]

In this respect, Art. 7.4.3 UPICC reads: "(1) Compensation is due only for harm, including future harm, that is established with a reasonable degree of certainty. (2) Compensation may be due for the loss of a chance in proportion to the probability of its occurrence. (3) Where the amount of damages cannot be established with a sufficient degree of certainty, the assessment is at the discretion of the court." It appears that this Article establishes two principles, namely, (a) the defaulting party is liable; and (b) the calculation of the loss is in proportion to the probability of the occurrence of the chance.[44] This Article reaffirms the well-known requirement of certainty of harm, since it is not possible to require the non-performing party to compensate harm which may not have occurred or which may never occur. Para. (1) of Art. 7.4.3 explicitly permits the compensation also of future harm, i.e. harm which has not yet occurred, provided that it is sufficiently certain. Para. (2) in addition covers loss of a chance, obviously only in proportion to the probability of its occurrence. Certainty relates not only to the existence of the harm but also to its extent.[45]There may be harm whose existence cannot be disputed but which it is difficult to quantify. This will often be the case in respect of loss of a chance (there are not always "odds" as there are for a horse, for example a student preparing for a public examination) or of compensation for non-material harm (detriment to someone's reputation, pain and suffering, etc.). According to para. (3), where the amount of damages cannot be established with a sufficient degree of certainty then, rather than refuse any compensation or award nominal damages, the court is empowered to make an equitable quantification of the harm sustained.[46]

The view can be taken that certainty is a matter governed, but not expressly settled in the Convention. Certainty can be either treated as a procedural issue, "indirectly" governed by the CISG, or merely as a substantive rule governed but not expressly settled in the Convention. Recourse in this case, must be, first, had to one of the general principles on which the Convention is based. If no relevant general principle is found, the matter must be settled in accordance with the applicable rules of Private International Law. It is to be stated that the issue of certainty of damages is directly related to the problem of proof. In practice, the proof of the precise amount of damages may not always be possible. Therefore, the extent of compensation can be determined on the basis of a mere discretion of a judge or an arbitrator. Such a solution of the problem of certainty can, first of all, derive from a relevant provision of an applicable law. This result may follow from either of the two approaches, i.e., where the issue of certainty is regarded as being either outside the scope of the CISG or "governed, but not expressly settled" in it, as well as from an application of the UNIDROIT Principles. This treatment of certainty represents a workable solution, which is conducive to maintaining the CISG international character and contributing to uniformity in its application.[47]

In short, according to the certainty test established under Art. 7.4.3 UPICC, there are two approaches that a court may follow in calculating the harm: Where the amount of harm, including future harm, can be established with certainty, the court will award that amount. However, where it is certain that harm has resulted or will result, but where the amount cannot be established with sufficient certainty, the court has a discretion in assessing the amount.

14.4 CONTRIBUTION TO HARM

14.4.1 In General

The next method of limiting damages, provided for in some legal systems and international documents such as the CISG, is the contribution rule. However, it is submitted that except indirectly, the CISG does not deal with the issue of contributory conduct of the aggrieved party which adds to the loss of harm suffered.[48]

In this respect, Art. 80 CISG is of particular relevance, which under the general heading of "Exemptions" establishes a general principle concerning the issue of contributory negligence and prescribes that: "A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act or omission." This Article states the self-evident proposition that a party cannot rely on another party's failure to perform if the failure was induced by the first party's own conduct e.g., by supplying faulty specifications for the construction of a machine or vessel or instructing the seller to use the paint of a particular manufacturer which proves unsuitable for the purpose for which it is intended.[49]

In discussing the contribution rule under Art. 80 CISG, the rule of estoppel or venire contra factum proprium has to be mentioned. This principle is known in German and Swiss law by the maxim non concedit venire contra factum proprium and, in common law countries, as estoppel by representation. It is found in French law in the form of a principle of consistency and has also been recognized in arbitral case law.[50] There is a general principle of law, both international and municipal, i.e. estoppel, which "requires that the party claiming it has relied on a representation by another party with a resulting detrimental consequence to its own interests".[51] "[A] man shall not be allowed to blow hot and cold - to affirm at one time and to deny at another ... Such a principle has its basis in common sense and common justice, and whether it is called estoppel or by any other name, it is one which courts of law have in modern times most usefully adopted."[52] In a word, no one may set himself in contradiction to his own previous conduct.[53]The ICJ has found estoppel to be "numbered among the general principles of law accepted by international law as forming part of the law of nations, and obeying the rules of interpretation relating thereto".[54] Its content is obviously an expression of general principles, in particular that of good faith, respectively a concrete manifestation of it, the prohibition to contradict one's own behaviour (venire contra factum proprium).[55]

Applying the principle that a party cannot contradict itself to the detriment of another, Art. 80 CISG was added at the Vienna out of an abundance of caution as a new rule which doesn't appear in the 1978 Draft.[56] Although no match-up of Art. 80 CISG with the 1978 Draft exists, and therefore no its counterpart in the Secretariat Commentary exists, there are various sources helping interpret this article. The general principle established under Art. 80 CISG, restricting remedies where non-performance is partly due to the conduct of the aggrieved party, can also be found in both Art. 7.1.2 UPICC and Art. 8:101(3) PECL. Further, both the UPICC and the PECL deal with the application of this general principle respectively in Art. 7.4.7 and Art. 9:504. All of these sources will do much in my discussions below.

14.4.2 Ways of Contributing to the Harm

As for the ways of contributing to the harm, it follows from Art. 7.1.2 UPICC, which reads: "A party may not rely on the non-performance of the other party to the extent that such non-performance was caused by the first party's act or omission or by another event as to which the first party bears the risk", that the contribution of the aggrieved party to the harm may consist either in its own conduct or in an event as to which it bears the risk. Art. 7.1.2 UPICC can be regarded as providing two excuses for non-performance. Two distinct situations are contemplated. In the first, one party is unable to perform either wholly or in part because the other party has done something which makes performance in whole or in part impossible. Another possibility is that non-performance may result from an event the risk of which is expressly or impliedly allocated by the contract to the party alleging non-performance.[57]

The Official Comment on UPICC Art. 7.4.7 also makes it clear: "The contribution of the aggrieved party to the harm may consist either in its own conduct or in an event as to which it bears the risk. The conduct may take the form of an act (e.g. it gave a carrier a mistaken address) or an omission (e.g. it failed to give all the necessary instructions to the constructor of the defective machinery). Most frequently such acts or omissions will result in the aggrieved party failing to perform one or another of its own contractual obligations; they may however equally consist in tortious conduct or non-performance of another contract. The external events for which the aggrieved party bears the risk may, among others, be acts or omissions of persons for whom it is responsible such as its servants or agents."[58] However, when the contract is being made, a party is normally only fixed with the knowledge imputed to his employees or agents involved in making the contract. The employee or other person must have been someone who was, or who appeared to be, involved in the negotiation or performance of the contract. If a person not so related to the contract knows a relevant fact he may not be able to appreciate its relevance to the contract and thus might not report it. The burden of proving that the person for whom the contracting party is held responsible was not and did not reasonably appear to the other party to be involved in the making or performance of the contract rests on the first party.[59]

Interestingly, Art. 8:101(3) PECL seems to contain only the first situation discussed above when it stipulates that: "A party may not resort to any of the remedies set out in Chapter 9 to the extent that it's own act caused the other party's non-performance." Nonetheless, Art. 9:504 PECL contains an analogous rule, which can be used to fill the gap in Art. 8:101(3) PECL: "The non-performing party is not liable for loss suffered by the aggrieved party to the extent that the aggrieved party contributed to the non-performance or its effects." This Article embodies the principle that an aggrieved party should not recover damages to the extent that its loss is caused by its own unreasonable behaviour. It embraces two distinct situations. The first is where the aggrieved party's conduct was a partial cause of the non-performance; the second, where the aggrieved party, though not in any way responsible for the non-performance itself, exacerbated its loss-producing effects by its behaviour.[60] To the extent that the aggrieved party contributed to the non-performance by its own act or omission he cannot recover the resulting loss. This may be regarded as a particular application of the general rule set out in Art. 8:101 (3).[61]

In short, ways of contributing to harm embrace two distinct situations. The first is where the aggrieved party's conduct was a sole or partial cause of the non-performance; the second, where the aggrieved party, though not in any way responsible for the non-performance itself, exacerbated its loss-producing effects by its behavior, i.e. the non-performance is caused by an external event as to which the aggrieved party bears the risk.

14.4.3 Remedies Affected by the Contribution

The remedies available for non-performance depend upon whether the non-performance results from behaviour of the other party. The fact that the non-performance is caused by the creditor's conduct (act or omission) or the external events as to which it bears the risk, has an effect on the remedies open to the obligee. Generally, this effect may be total, that is to say that the creditor cannot exercise any remedy, or partial. The exact consequence of the creditor's behaviour will be examined with each remedy.[62]

14.4.3.1 Remedies available upon non-performance caused solely by the contribution

There is agreement among the legal systems that a non-performance which is due solely to the other party's wrongful prevention does not give the latter any remedy. These will mostly be breaches of contract on the part of the creditor. In most of the systems the party who has prevented performance will himself be the non-performing party against whom the remedies may be exercised.[63]

Enderlein & Maskow submit that: The party in breach can, therefore, not assert any claims because of a breach of contract. It not only has no right to claim damages, as in the event of grounds for exemption in the meaning of Art. 79, it has no right to performance nor to avoidance. When the debtor is hindered in performing in time by the party in breach, e.g. because of belated communication of instructions for dispatch, the seller cannot dispatch the goods, the party in breach will have to accept the late delivery without having the right to require any sanction. When the party in breach has caused the non-conform or defective delivery, e.g. sub-supply of material having non-apparent defects, he cannot require delivery of substitute goods or repair or reduction of the price, etc. The acts by the creditor which cause the breach of contract will generally represent themselves as breach of contract committed by the former so that the debtor being the creditor of those acts can assert the respective claims. He will have the right to claim damages only to the extent to which the party in breach cannot rely on impediments. Among the rest of the claims, which are retained in any case, the right to avoid the contract is of special relevance. In asserting that right, the fate of the blocked contract can be decided once and for all.[65]

Peter Schlechtriem confirms: "Article 80 releases a party from his obligations where the other party has impaired his performance. [...] In such cases, an obligor will generally be excused from liability on the basis of Article 79(1). But Article 80 reaches much further. Since Article 80 exempts all claims against the obligor, it gained importance when a proposal was rejected which would have extinguished the right to demand specific performance in a case where Article 79 exempts a party for liability for damages. If the buyer frustrated performance, such as by not providing drawings required for production or by not procuring an import permit, he can neither demand specific performance nor declare an avoidance. He also may not reduce the price for defects caused by mistakes in the drawings he provided. Of course, the obligor is excused only to the extent of the hindrance caused by the obligee. The obligee need not be responsible -- in the sense of Article 79 -- for the impairment he caused."[66]

Although it is said that "the view prevailed that it [Art. 80 CISG] is more closely related to exemptions and duty to cooperate in cases of impediments",[67] the Official Comment on Art. 7.1.2 UPICC stresses that, when the interference or contribution rule applies, the relevant conduct doesn't become excused non-performance but loss the quality of non-performance altogether.[68]

14.4.3.2 Damages proportionately reduced due to partial contribution

As discussed above, the conduct of the aggrieved party or the external events as to which it bears the risk may have made it absolutely impossible for the non-performing party to perform. In addition, it is also contemplated there is the possibility of one party's interference acting only as a partial impediment to performance by the other party and in such cases it will be necessary to decide the extent to which non-performance was caused by the first party's interference and to which it was caused by other factors.[69]

In application of the general principle established by Art. 7.1.2 UPICC (corresponding to the solution adopted by Art. 80 CISG) which restricts the exercised of remedies where non-performance is in part due to the conduct of the aggrieved party, Art. 7.4.7 UPICC limits the right to damages by providing that: "Where the harm is due in part to an act or omission of the aggrieved party or to another event as to which that party bears the risk, the amount of damages shall be reduced to the extent that these factors have contributed to the harm, having regard to the conduct of each of the parties." This article, together with its Official Comment can therefore be helpful in the interpretation of Art. 74 of the CISG read together with Arts. 77 and 80 in establishing the extent to which the defaulting party is excused from liability for damages due to the conduct of the aggrieved party.

Generally, it would indeed be unjust for an aggrieved party to obtain full compensation for harm for which it has itself been partly responsible.[70] It would be contrary to good faith and fairness for the creditor to have a remedy when it is responsible for the non-performance. The most obvious situation is the so-called mora creditoris, where the creditor directly prevents performance (e.g. access refused to a building site). But there are other cases where the creditor's behaviour has an influence on the breach and its consequences. For example, when there is a duty to give information to the other party, and the information given is wrong or incomplete, the contract is imperfectly performed. In other cases where there is also a non-performance by the debtor, the creditor may exercise the remedies for non-performance to a limited extent. When the loss is caused both by the debtor - which has not performed - and the creditor - which has partially caused the breach by its own behaviour - the creditor should not have the whole range of remedies.[71] It is clear that in such a case the amount of damages ought to be reduced proportionally. Such apportionment of damages will often involve a judicial discretion in weighing the different facts contributing to the eventual damages suffered.[72] However, the determination of each party's contribution to the harm may well prove to be difficult and will to a large degree depend upon the exercise of judicial discretion. In order to give some guidance to the court this article provides that the court shall have regard to the respective behaviour of the parties. The more serious a party's failing, the greater will be its contribution to the harm.[73]

More specifically, Enderlein & Maskow present several principles which could, in their view, be inferred from the regulation governing the most important case groups as follows: (a) When the consequences of the different causes can be delimited from one another, every cause has to be attributed to its legal remedy. A distinction will, however, have to be made of what caused the breach of contract. (b) When a breach of contract by the debtor and an act or omission by the creditor act in combination having the same effect, the act or omission of the creditor dominates. But exemption will become effective only in regard to the conduct concerned. The party in breach can, therefore, not claim a breach of contract because of the consequences of the act or omission of the creditor. The result can be a stalemate in which the contract is neither performed nor can it be avoided by any of the parties. (c) The last case to be considered here is the one where the failures of the two parties are so closely interwoven that their effects cannot be delimited and attributed to the breach of contract which is the result of that situation, such as when the buyer provides drawings which cannot, in part, be realized, and the seller, without referring back to the buyer, proceeds with modifications in the realization which do not meet the intentions of the buyer. In their view, it is appropriate in these cases to reduce the legal consequences which would be the result of a breach of contract where the causes of the breach are not taken into consideration. The reduction can be merely quantitative as in the case of damages, insofar also grounds for exemption on the part of the debtor would have to be, taken into account. But it may also take on a qualitative character when the right to avoidance of the contract is turned into a claim for damages, which might then be thwarted because of grounds for exemption, for it is assessed that the breach of contract because of the act or omission of the creditor has passed the threshold toward a fundamental breach. Or, the right to performance may be judged to have elapsed and the part of the debtor in the breach of the contract is paid off because of a claim for damages by the creditor.[74]

Finally, it must be noted that Art. 80 CISG covers only one aspect of the issue at stake, which deals with the loss suffered by the aggrieved party which results from his own unreasonable behavior. There is another situation where the loss resulting from the non-performance could have been reduced or extinguished by appropriate steps in mitigation. This is clear from the fact that the issue of contributory conduct is dealt with separately in the UNIDROIT Principles in Art. 7.4.7, whereas the mitigation duty is dealt separately with in Art. 7.4.8 (respectively dealt with in Art. 9:504 and Art. 9:505 PECL) which is to be focused below.

14.5 DUTY TO MITIGATE

14.5.1 In General

The party who is true to the contract cannot sit and wait for the other party to breach the contract, but must become active in order to minimize the loss or to prevent it at all.[75] In other words, even where the aggrieved party has not contributed either to the non-performance or to its effects, it cannot recover for loss it would have avoided if it had taken reasonable steps to do so.

In this respect, the mitigation doctrine, which is a generally admitted obligation in Common Law, though "not so largely and clearly consecrated in Civil Law", deals with such an "obligation for a creditor to minimise the damage he suffers because of the non-fulfilment by the debtor of his own commitments."[76 ]Now, a number of international awards have applied it as a general principle of international trade, not referring in particular to a Common Law system.[77] Indeed, it is said to "constitute the lex mercatoria in its present form",[78] and is regarded as "[o]ne of the most well-established general principles in arbitral case law".[79] Further, the awards in support on mitigation "rarely call up the lex mercatoria in so many words; they merely treat the principle as obvious."[80]

Mitigation has gained under the three instruments, it is regarded as one of the principles "capable of general application" as expressed in provisions of the CISG.[81] Under the CISG, Art. 77 is of particular relevance (the mitigation rule is also reflected in Arts. 85 and 86 concerning preservation of the goods), which limits damages by placing an obligation to mitigate damages on the aggrieved party: "A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated." Art. 77 CISG adopts the same principle as Art. 88 ULIS, but clarifies certain matters.[82]

In the Secretariat Commentary on Art. 73 of the 1978 Draft [draft counterpart of CISG Art. 77],[83] it is stated that Art. 77 (together with Arts. 85-88) is one of several articles which states a duty owed by the injured party to the party in breach.[84] However, "even if it is possible to refer to mitigation using such terms as a 'duty' or an 'obligation', the nature of this 'duty' is substantially different from other obligations under the CISG."[85] Because the first sentence of Art. 77 is worded in terms of a duty to mitigate, courts may require such mitigation, and allow a set-off in favor of the breaching party for failure of the non-breaching party to mitigate. The second sentence seems to take the approach that CISG Art. 77 was not intended to place liability on the injured party for failing to avoid damages but is meant to simply precluded an injured party from recovering damages which could have reasonably been avoided.[86] A third interpretation of Art. 77 takes the position that mitigation of loss can become a sword as well as a damages shield -- by drawing on the "general principles" provision of the CISG, Art. 7(2) to create a duty of "loyalty to the other party to the contract". Failure to mitigate damages may be a breach of this duty and result in recoverable damages.[87] It appears that the parameters of the duty to mitigate under Art. 77 are not clear. Presumbly it does not affect the aggrieved party's right to seek specific performance or his right to avoid the contract where a fundamental breach has occurred. Presumably too the greater particularity will have to be supplied in the light of the overall structure of the Convention, the general principles on which it is based (Art. 7), and the duty of good faith.[88]

Nonetheless, the significance of the deliberations in Art. 77 CISG is of no doubt. This mitigation duty has been adopted under the two Principles. In the UPICC, this principle is reflected in Art. 7.4.8 under the heading "Mitigation of Harm" and has been formulated as: "(1) The non-performing party is not liable for harm suffered by the aggrieved party to the extent that the harm could have been reduced by the latter party's taking reasonable steps. (2) The aggrieved party is entitled to recover any expenses reasonably incurred in attempting to reduce the harm." Indeed, it has been stated that the provision of the UPICC on contribution to harm (supra. 14.4) "must be read together in conjunction with the following article on mitigation of harm (Art. 7.4.8). While the present article [Art. 7.4.7] is concerned with the conduct of the aggrieved party in regard to the cause of the initial harm, Art. 7.4.8 relates to that party's conduct subsequent thereto."[89] The purpose of this article is to avoid the aggrieved party passively sitting back and waiting to be compensated for harm which it could have avoided or reduced. Any harm which the aggrieved party could have avoided by taking reasonable steps will not be compensated. It would be unreasonable from the economic standpoint to permit an increase in harm which could have been reduced by the taking of reasonable steps.[90] And a rule concerning "Reduction of Loss" can also be found in Art. 9:505 of the PECL, which resembles Art. 7.4.8 UPICC: "(1) The non-performing party is not liable for loss suffered by the aggrieved party to the extent that the aggrieved party could have reduced the loss by taking reasonable steps. (2) The aggrieved party is entitled to recover any expenses reasonably incurred in attempting to reduce the loss."

14.5.2 Reasonable Measures Taken

The idea underlying mitigation is that the aggrieved party cannot recover damages with respect to loss which he could have reasonably avoided. However, no exceptional efforts are required from that party; he only has to take such measures to mitigate loss as are reasonable in the circumstances concerned. According to Art. 77 CISG, the aggrieved party must take measures "as are reasonable in the circumstances". The type of measures that need to be undertaken depends on the criterion of reasonableness. The latter, in turn, depends on and will be construed in the light of the circumstances in question.[91] It is said that the duty to mitigate applies to an anticipatory breach of contract as well as to a breach in respect of an obligation the performance of which is currently due.[92] It follows that this provision refers the duty to mitigate to all kinds of loss. However, different types of loss can practicably give rise to a great variety of situations.

Although not specifically defined, on the one hand, reasonableness is specifically mentioned in thirty-seven provisions of the CISG and clearly alluded to elsewhere in the Uniform Sales Law. Reasonableness is a general principle of the CISG. As a general principle of the CISG, reasonableness has a strong bearing on the proper interpretation of all provisions of the CISG.[93] On the other hand, the principle of "reasonableness" plays a dominant and recurrent role in almost all of the provisions of the UPICC.[94] Although no blanket clause which defines the notion of reasonableness is found either in the CISG or the UNIDROIT Principles, reasonableness is generally defined in the PECL, which "also fits the manner in which this concept is used in the CISG [as well as the UPICC]. This definition can help researchers apply reasonableness to the CISG [as well as the UPICC] provisions in which it is specifically mentioned and as a general principle of the CISG [as well as the UPICC]."[95]

In this respect, Art. 1:302 PECL specializes "Reasonableness" as: "Under these Principles reasonableness is to be judged by what persons acting in good faith and in the same situation as the parties would consider to be reasonable. In particular, in assessing what is reasonable the nature and purpose of the contract, the circumstances of the case, and the usages and practices of the trades or professions involved should be taken into account." Generally speaking, reasonableness is to be judged by what parties acting in good faith and the same situation as the parties would consider to be reasonable. In deciding what is reasonable all relevant factors should be taken into consideration. Account should be taken of the nature and purpose of the contract. The circumstances of the case will have to be considered. Furthermore, the usages and practices of the trade or profession should be taken into account. These generally reflect the behaviour of reasonable parties.[96] "In general, it has been said that a measure is reasonable 'if under the particular circumstances, it could be expected to be taken by a person acting in good faith, or if it is 'adequate' and preventive with respect to the loss. In the evaluation of the situation, regard should be also had to the party's skills and position as a businessman, such as, for example, 'ingenuity, experience, and financial resources', etc. At that, relevant trade usage, if any, should be taken into account as well. The aggrieved party is not, in any way, obliged to take measures, which, in the circumstances concerned, are 'excessive' and entail unreasonably high expenses and risks. If the party refrains from such measures, he will not be considered as not having complied with Article 77."[97]

Although it does not seem possible to list every single measure which can be possibly implied in Art. 77 CISG, some examples of such measures will be given in order to illustrate how wide a range of possible mitigating measures can be. It is commented that such measures may frequently include a cover purchase or sale. It can also include the possibility that the buyer himself remedies defective goods delivered to the buyer. Although there is no obligation to avoid the contract even if the other party has committed or is expected to commit a fundamental breach of contract (Arts. 49 and 64 CISG), avoidance of the contract may be one of the reasonable measures which help to mitigate the losses of the injured party. If reasonable measures can be taken before an impending breach of contract, they have to be taken by the party threatened by loss. Such measures could include for instance suspension of performance under Art. 71.[98]

In sum, "[t]he steps to be taken by the aggrieved party may be directed either to limiting the extent of the harm, above all when there is a risk of it lasting for a long time if such steps are not taken (often they will consist in a replacement transaction: see Art. 7.4.5), or to avoiding any increase in the initial harm."[99] Indeed, the creditor should attempt to undertake everything possible in order to diminish the loss or at least to prevent its increase, and thus this rule may be regarded as just and fair.[100] On the other hand, the failure to mitigate loss may arise either because the aggrieved party incurs unnecessary or unreasonable expenditure or because it fails to take reasonable steps which would result in reduction of loss or in offsetting gains. However, the aggrieved party will not necessarily be expected to take steps to mitigate its loss immediately it learns of the breach; it will depend on whether its actions are reasonable in the circumstances. The aggrieved party is only expected to take action which is reasonable, or to refrain from action which is unreasonable, in the circumstances. Thus it need not act in any way that will damage its commercial reputation just to reduce the non-performing party's liability.[101] Evidently, a party who has already suffered the consequences of non-performance of the contract cannot be required in addition to take time-consuming and costly measures.[102] However, the decision on how and in what way an injured party should have mitigated his loss can be made only on the basis of careful examination of all circumstances of a concrete situation, criterion of reasonableness, and the type of loss in question.[103]

14.5.3 Effects of Failure to Mitigate

With regard to the legal effects of such failure, it follows from the wording of Art. 77 CISG "the party in breach may claim a reduction in the damages" that, non-fulfillment of this obligation by one party does not entail a claim for damages but rather leads to a situation where the party who is true to the contract cannot claim full compensation for damages. Reference is made here only to a party claiming damages. The rule of Art. 77 does not apply to other remedies."[104]Therefore, the failure to mitigate will not affect the injured party's claim for other remedies. The only exception is said to be the case where it was reasonable to expect the injured party to carry out certain actions, for example, in the form of avoidance of the contract or of the conclusion of a cover transaction, in order to mitigate the loss.[105] As regards the amount, it follows from Art. 77 CISG that if the aggrieved party fails to mitigate, the party in breach will have the right to claim reduction in damages "in the amount by which the loss should have been mitigated". In this respect, similar approaches can also be found in UPICC Art. 7.4.8(1) and PECL Art. 9:505(1).

On the other hand, frequently the aggrieved party will have to incur some further expenditure in order to mitigate its loss. The problem is that mitigation itself can bring about certain forms of loss. In other words, mitigation can often be the source of loss. In taking certain mitigating measures, an injured party may have to incur a number of different expenses such as, for example, the costs of storage, repair costs or brokerage costs. Both Art. 7.4.8(2) UPICC and Art. 9:505(2) PECL allow the aggrieved party to recover expenses reasonably incurred in attempts to avoid or mitigate the loss. Expenses are to be reimbursed even if they increased the total loss, provided they were reasonable. Costs which the party threatened by loss incurs for the measures he takes to mitigate his losses can also be claimed compensation for even when the, otherwise reasonable, measures were taken in vain.[106] It is also argued that, the wording of Art. 77 CISG is broad enough to require that losses out of a measure aimed at mitigation should be mitigated.[107]

One should note, however, despite any harm which the aggrieved party could have avoided by taking reasonable steps will not be compensated, the reduction in damages to the extent that the aggrieved party has failed to take the necessary steps to mitigate the harm must not however cause loss to that party. The aggrieved party may therefore recover from the non-performing party the expenses incurred by it in mitigating the harm, provided that those expenses were reasonable in the circumstances.[108]

Go to table of contents to full text of Remedies for Non-performance: Perspectives from CISG, UNIDROIT Principles & PECL.


FOOTNOTES: Chapter 14

* Chengwei, Liu. LL.M. of Law School of Renmin University of China, P.O. Box 9-01 No. 1 (International Law), Law School of Renmin University of China, 59 Zhongguancun Street, Beijing 100872, China. E-mail: Genes@263.net.

1. See Treitel, Remedies for Breach of Contract: A Comparative Account, (1988); p. 76. Treitel submits that the full compensation of the expectation and reliance interests would operate either as too strong a disincentive to the assumption of contractual obligations, or to an undue raising of charges to cover such unlimited liability.

2. The theory of "adequate causation" holds that a wrongdoer is liable for a loss if his default appreciably increased the objective possibility of loss of a kind that in fact occurred; on the other hand, he is under no liability if his default was, according to the ordinary course of things, quite indifferent with regard to the consequence which in fact occurred, and only became a condition of the occurrence of the loss as a result of unusual or intervening events. (See Treitel, G.H. in "Remedies for Breach of Contract": David/ von Mehren eds., International Encyclopedia of Comparative Law, Bd. VII, Tübingen (1976); p. 66. Available online at: <http://tldb.uni-koeln.de/TLDB.html>; TLDB Document ID: 117200.)

3. See Djakhongir Saidov in "Methods of Limiting Damages under the Vienna Convention on the International Sale of Goods". (2001) Available online at <http://www.cisg.law.pace.edu/cisg/biblio/saidov.html>. Enderlein & Maskow also states that: "It is above all the Anglo-American (e.g. 2-715, paragraph 2 UCC) and the French legal families (Article 1150 Code civil) which provide for a limitation of damages by way of foreseeability. Other legal systems come to similar conclusions using the so-called theory of adequacy." (See Fritz Enderlein, Dietrich Maskow, infra. note 8.)

4. See Tallon, Denis in "Damages, Exemption Clauses, and Penalties": 40 Am.J.Comp.L. (1992); pp. 678-679. TLDB Document ID: 129100. Tallon states in this point: Foreseeability of harm is an interesting topic from a comparative point of view. Certain systems do not possess such a rule because foreseeability is merged with the notion of causality: it is the case of German, Swiss or Dutch law (art. 6-98 NBW). Other systems refer to foreseeability but have a different approach to it, despite superficial similarities. At common law, foreseeability is more or less a question of causality, and Section 2-715(2)(a) of the UCC speaks of "consequential damages." Moreover, according to the rules in Hadley v. Baxendale, foreseeability is a test for remoteness: what was not foreseeable at the time of the contract is a loss too remote to be compensated. And this is why foreseeability is also used in tortious liability. In the civil law countries where foreseeability is one of the criteria, such as in article 1150 of the French Civil Code and article 1125 of the Italian Civil Code, art. 1225 C.Civ. italien, the rule is more refined: foreseeability is a limit to compensation for direct harm; it is an exception to the full compensation principle in favor of the performing party when the latter acted in good faith. The limit does not apply in case of deliberate or grossly negligent non-performance. This stems from the more acute "moralist approach" of the civil law. But there is also an economic justification: a party may estimate in advance the amount of damages to be paid (or for which insurance must be brought). The rule is, by necessity, specific to breaches of contract.

5. See Peter Schlechtriem, Uniform Sales Law-The UN-Convention on Contracts for the International Sale of Goods, Manz, Vienna (1986); p. 97. Available online at <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem.html>.

6. Several other articles of the CISG further the goal of compensation. For example, Art. 75 stipulates that, a party's substitute purchase or resale after the other's default must be reasonable. Under this rule, a buyer cannot purchase more expensive goods after a breach and claim the difference between the contract price and the substitute price if goods were available at the contract rate.

7. See Arthur G. Murphey, Jr. in "Consequential Damages in Contracts for the International Sale of Goods and the Legacy of Hadley", 23 Geo. Wash. J. Int'l. L. & Econ. (1989); pp. 415-474. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/murphey.html>.

8. See Fritz Enderlein, Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods, Oceana Publication (1992); p. 300. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/enderlein.html>.

9. See Djakhongir Saidov, supra. note 3.

10. Supra. note 8, p. 301.

11. See Stoll in "Commentary on the UN Convention on the International Sale of Goods (CISG)", Peter Schlechtriem ed., (Second Edition, 1998); p. 568.

12. See Knapp, Commentary on the International Sales Law: The 1980 Vienna Sale Convention, Cesare Massimo Bianca & Michael Joachim Bonell eds. (1987); p. 542.

13. Infra. note 17.

14. Supra. note 7.

15. Supra. note 8.

16. See Treitel, supra. note 1, p. 160. The position is the same in Art. 7.4.4 of the UPICC and Art. 9:503 of the PECL. However, Murphey submits (supra. note 7): "Limiting effective notice to the time of the contracting will not always discourage breaches. For instance, a party may discover at the time he or she decides to breach that losses will be much greater than were 'foreseeable' at the time of contracting. In such a case, a rule which focuses on the time of contracting will be less discouraging than one which focuses on the time of breach. Nevertheless, if the notice time in the C.I.S.G., like the rule in Hadley, discourages most intentional breaches, this author would argue that this is a good result."

17. See P.D.V. Marsh, Comparative Contract Law: England, France, Germany, Gower Publishing (1994); p. 314.

18. See Djakhongir Saidov, supra. note 3.

19. Supra. note 17.

20. See Djakhongir Saidov, supra. note 3.

21. Supra. note 10.

22. Supra. note 12.

23. See Jeffrey S. Sutton in "Measuring Damages Under the United Nations Convention on the International Sale of Goods": 50 Ohio State Law Journal (1989). Available online at <http://www.cisg.law.pace.edu/cisg/biblio/sutton.html>.

24. See Djakhongir Saidov, supra. note 3.

25. Supra. note 7.

26. See Djakhongir Saidov, supra. note 3.

27. See e.g., Bundesgerichtsh of 24 October 1979 where the German Supreme Court held that: "The Court of Appeals was also correct that ULIS Article 82 requires a subjective and objective test, that the test can conclusively be met by a showing of trade custom as to foreseeability, and that a survey of persons in the trade is a proper means of determining those facts under Code of Civil Procedure, section 346." Available online at <http://cisgw3.law.pace.edu/cases/791024g1.html>. (The case was decided on the basis of Art. 82 ULIS, which contained the same rule of foreseeability as provided for in Art. 74 CISG.)

28. Art. 9 CISG states: "(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. (2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned."

29. See Djakhongir Saidov, supra. note 3.

30. Supra. note 7.

31. Supra. note 12, p. 541.

32. Supra. note 8, p. 302.

33. See Djakhongir Saidov, supra. note 3.

34. Ibid. However, for the sake of practicing, as well as considering their explicit texts and the role played by uniform law instruments in avoiding those confusions caused by so close an inter-connection of these two concepts in different legal systems, one may advisably lay in international commercial disputes everything on the foreseeability rule, unless the applicable law provides otherwise. Moreover, the "international character" of the uniform law instruments such as CISG as well as the need to promote uniformity in its application should prevent domestic courts from embedding a causation requirement into an international dispute seeking damages. In fact, both Art. 74 CISG and Arts. 7.4.2, 7.4.4 UPICC presuppose a sufficient causal link under foreseeability between the non-performance and the harm.

35. See Sieg Eiselen in "Remarks on the Manner in which the UNIDROIT Principles of International Commercial Contracts May Be Used to Interpret or Supplement Article 74 of the CISG". Available online at <http://www.cisg.law.pace.edu/cisg/principles/uni74.html>.

36. See Comment on Art. 7.4.4 UPICC.

37. See Comment and Notes to the PECL: Art. 9:503. Comment B. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp74.html>.

38. Such a rule could at best be deduced from the underlying general principles of the CISG (Arts. 7(2); 40 and 43(2)).

39. Supra. note 36.

40. Supra. note 35.

41. Supra. note 36.

42. Supra. note 35.

43. See Alejandro M. Garro in "The Gap-Filling Role of the UNIDROIT Principles in International Sales Law: Some Comments on the Interplay between the Principles and the CISG": Tulane Law Review, (April 1995); p. 1188.

44. Supra. note 35.

45. See Comment 1 on Art. 7.4.3 of UPICC.

46. See Comment 2 on Art. 7.4.3 of UPICC.

47. See Djakhongir Saidov, supra. note 3.

48. Supra. note 35.

49. See Jacob S. Ziegel in "Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods". Available online at <http://www.cisg.law.pace.edu/cisg/text/ziegel80.html>.

50. See Fouchard, Gaillard, Goldman, International Commercial Arbitration, Emmanuel Gaillard and John Savage ed., The Hague (1999); p. 820. TLDB Document ID: 130600.

51. See ICC Award No. 6363, YCA 1992, p. 201; TLDB Document ID: 206363. For more on the interpretation of estoppel, see Black, Henry Campell, Black's Law Dictionary, 6th ed., St. Paul (1990); TLDB Document ID: 100700.

52. See English Court of Exchequer, Cave v. Mills (1862), Hurlstone & Norman, 913 at 927.

53. Principle No. I.7 of the TLDB List.

54. See ICJ North Sea Continental Shelf Case, Separate Opinion of Judge Fouad Ammoun, ICJ Rep. (1969); pp. 120-121. TLDB Document ID: 300300.

55. Supra. note 8, p. 335.

56. This provision is based on a proposal by the German Democratic Republic. See A.Conf. 97/C.1/L.217 (O.R. 134). This provision resembles ULIS Art. 74 (3) which states: "The relief provided by this Article for one of the parties shall not exclude the avoidance of the contract under some other provision of the present Law or deprive the other party of any right which he has under the present Law to reduce the price, unless the circumstances which entitled the first party to relief were caused by the act of the other party or of some person for whose conduct he was responsible."

57. See Comments 1, 2 on Art. 7.1.2 UPICC.

58. See Comment 2 on Art. 7.4.7 UPICC.

59. See Comment and Notes to the PECL: Art. 1:305. Comment C. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp80.html>.

60. See Comment and Notes to the PECL: Art. 9:504. Comment A. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp74.html>.

61. Ibid., Comment B.

62. See Comment and Notes to the PECL: Art. 8:101. Comment B(iii). Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp80.html>.

63. Ibid., Note 3.

64. See Comment 3 on Art. 7.4.7 UPICC.

65. Supra. note 8, p. 336.

66. Supra. note 5, p. 105-106.

67. See Jelena Vilus in "Provisions Common to the Obligations of the Seller and the Buyer": Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lectures, Oceana (1986); p. 256. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/vilus.html>.

68. See Comment 1 on Art. 7.1.2 UPICC.

69. Ibid.

70. See Comment 1 on Art. 7.4.7 UPICC.

71. Supra. note 62.

72. Supra. note 35.

73. Supra. note 64.

74. Supra. note 8, pp. 338-339.

75. Supra. note 12, p. 560.

76. See Goldman, Berthold in "The Applicable Law: General Principles of Law - the Lex Mercatoria": Lew ed., Contemporary Problems in International Arbitration, London (1986); p. 125. TLDB Document ID: 112400.

77. See e.g. ICC Award, Case Nos .2103/72, 101 Clunet 902 (1974); 2748/74, 102 Clunet 905 (1975); 2291/75, 103 Clunet 989 (1976); 2520/75, 103 Clunet 992 (1976).

78. See Mustill, Michael in "The New Lex Mercatoria: The First Twenty-five Years": Arb.Int'l (1988); p. 113. TLDB Document ID: 126900. Also Lowenfeld, Andreas F. in "Lex Mercatoria: An Arbitrator's View": Arb.Int'l (1990); p. 148. TLDB Document ID: 126000.

79. See Fouchard, Gaillard, Goldman in "International Commercial Arbitration": Emmanuel Gaillard & John Savage ed., The Hague (1999); p. 832. TLDB Document ID: 130600.

80. See Mustill, supra. note 78, n. 100.

81. See Rolf Herber in "English Commentary on the UN Convention on the International Sale of Goods (CISG)": Comment on Art. 7, Peter Schlechtriem ed., Oxford (1998). TLDB Document ID: 117900.

82. First of all, it makes clear that the aggrieved party's duty to mitigate loss includes not only loss of assets (damnum emergens) but also loss of profit (lucrum cessans). The phrase "loss resulting from the breach" appears in the English versions of both the CISG and ULIS. However, a change in the wording of the French versions (la perte . . . resultant de la contravention) (CISG) instead of (la perte subie) (ULIS) is intended to indicate that the aggrieved party is obliged not only to take reasonable measures to mitigate loss which has already occurred, but also to counteract imminent loss. Art. 77, second sentence, clearly lays down that damages cannot be claimed in respect of loss which could have been mitigated by the aggrieved party, while Art. 88 ULIS leaves open the extent to which damages are to be reduced in the event of a failure to observe the requirement to mitigate loss. (Supra. note 11, p. 585.) Art. 88 of the ULIS reads: "The party who relies on a breach of the contract shall adopt all reasonable measures to mitigate the loss resulting from the breach. If he fails to adopt such measures, the party in breach may claim a reduction in the damages."

83. Art. 73 of the 1978 Draft reads: "The party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount which should have been mitigated." The match-up "indicates that article 73 of the 1978 Draft and CISG article 77 are substantively identical".97 "The only modification to 1978 Draft article 73 were to substitute 'A' for 'The' at the outset and to revise the last clause to read: damages in the amount 'by which the loss' should have been mitigated. The Secretariat Commentary on 1978 Draft article 73 should therefore be relevant to the interpretation of CISG article 77." Thus, to the extent it is relevant to the Official Text, the Secretariat Commentary on Art. 73 of the 1978 Draft is perhaps the most authoritative source one can cite. "It is the closest counterpart to an Official Commentary on the CISG." See the match-up available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-d-77.html>.

84. See Secretariat Commentary on Art. 73 of the 1978 Draft, Comment 2. Available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-77.html>.

85. See Djakhongir Saidov, supra. note 3.

86. See Eric C. Schneider in "Measuring Damages under the CISG". Available online at <http://www.cisg.law.pace.edu/cisg/text/cross/cross-74.html>.

87. See Peter Schlechtriem in "Recent Developments in International Sales Law": 18 Israel L.R. (1983); pp. 320-321.

88. See Jacob S. Ziegel in "Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods". Available online at <http://www.cisg.law.pace.edu/cisg/text/ziegel77.html>.

89. See Comment 4 on Art. 7.4.7 UPICC.

90. See Comment 1 on Art. 7.4.8 UPICC.

91. See Djakhongir Saidov, supra. note 3.

92. Supra. note 84, Comment 4.

93. See Overview Comments on Reasonableness by Albert H. Kritzer. Available online at: <http://www.cisg.law.pace.edu/cisg/text/reason.html#view>.

94. E.g., UPICC Arts. 1.8(2), 3.8, 3.9, 3.16, 4.1(2), 4.8(2)(d), 5.4(2), 5.6, 5.7(2), 5.8, 6.1.1(c), 6.1.16, 6.1.17, 7.1.6, 7.1.7, 7.2.2, 7.2.5, 7.3.2, 7.4.6(2), 7.4.8, 7.4.13.

95. Supra. note 93.

96. See Comment and Notes to the PECL: Art. 1:302. Comment B. Available online at <http://www.cisg.law.pace.edu/cisg/text/reason.html>.

97. See Djakhongir Saidov, supra. note 3.

98. Supra. note 8, p. 308.

99. Supra. note 90.

100. Supra. note 67, p. 252.

101. See Comment and Notes to the PECL: Art. 9:505. Comment A. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp77.html>.

102. Supra. note 90.

103. See Djakhongir Saidov, supra. note 3.

104. See Molineaux, Charles in "Moving Toward a Lex Mercatoria - A Lex Constructionis": 14 J. Int'l Arb. (1997); No. 1, p. 65. TLDB Document ID: 126700.

105. See Djakhongir Saidov, supra. note 3.

106. Supra. note 12, p. 561.

107. See Djakhongir Saidov, supra. note 3.

108. See Comment 2 on Art. 7.4.8 UPICC.


Pace Law School Institute of International Commercial Law - Last updated October 27, 2003
Go to Database Directory ||| Go to full text of "Remedies for Non-performance ..."
Comments/Contributions