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Reproduced with permission of the author

Article 77 CISG:

Reasonableness of the Measures Undertaken to Mitigate the Loss

Peter Riznik

10 November 2009

Mentors:

Prof. Dr. Joseph Lookofsky, Faculty of Law, University of Copenhagen
Prof. Dr. Matjaž Tratnik, Faculty of Law, University of Maribor

Abstract
List of Abbreviations
Index of Authorities
Table of Cases and Arbitral Awards
Index of Legal Sources

§ 1 Duty to Mitigate the Loss
      § 1.1 CISG Provisions Regarding Damages Claims
      § 1.2 Duty to Mitigate
      § 1.3 Duty to Mitigate in the CISG
      § 1.4 No 'Obligation to Mitigate the Loss' as Such
      § 1.5 Ex Officio
§ 2 Legislative History
§ 3 Scope of Application
      § 3.1 Damages Resulting from a Breach of Contract
      § 3.2 No Application to other Measures -- Effect of Right to Require Performance
      § 3.3 Delimitation to Article 80
      § 3.4 Duty to Preserve Goods
§ 4 Reasonableness of the Measures Undertaken by the Party Relying on the Breach to Mitigate the Loss
      § 4.1 Burden of Proof
      § 4.2 Appropriate Measures to Mitigate the Loss
            § 4.2.1 A Substitute (Cover) Transaction
                  a) A Cover Purchase by the Buyer
                  b) A Resale by the Seller
            § 4.2.2 Other Measures -- in General
                  a) Other Measures Undertaken by the Buyer
                  b) Other Measures Undertaken by the Seller
            § 4.2.3 Anticipation of Especially High Losses
      § 4.3 Time of Mitigation
            § 4.3.1 Measures Undertaken after the Breach of Contract
            § 4.3.2 Measures Undertaken Prior to the Date of Performance
                  a) Goods Purchased for Resale
                  b) Materials Needed for Current Production
§ 5 Calculation of Damages in Cases where Mitigation was Required
§ 6 Costs of Mitigation
      § 6.1 Employing a Debt Collection Company or an Enforcing Agent
§ 7 Conclusion

ABSTRACT

In an action for breach of contract, the aggrieved party is under Article 77 CISG required to undertake reasonable measures to minimize their loss in order to satisfy their duty to mitigate damages.

As this provision relies heavily on the principle of 'reasonableness' it can be subject of wide interpretation by courts and arbitration tribunals. In order to canvass some aspects of measures that have been found reasonable in relation to this duty, this thesis focuses on the interpretation of the principle of reasonableness in case law as well as in scholarly opinions by means of presenting numerous case abstracts as well as references to academic works. The duty to mitigate in general as provided by Article 77 CISG has been thoroughly summarized, including the very problematic field of its application to the aggrieved party's remedies other than claims for damages.

Due to the vast amount of international commercial sales governed by the CISG, it is important to understand and be able to interpret the individual provisions. This work therefore hopes to provide the reader with an in-depth understanding of the mitigation of damages in a very significant part of international trade.


LIST OF ABBREVIATIONS

&   And
% per cent
ABGB Allgemeines Bürgerliches Gesetzbuch (Austria)
Art. / Arts. Article / Articles
BGB Bürgerliches Gesetzbuch (Germany)
cf. confer [compare, consult]
CIETAC China International Economic and Trade Arbitration Commission
CISG United Nations Convention on Contracts for the International Sale of Goods (Vienna, April 11, 1980)
e.g. exemplum gratii [for example]
et al. et alii [and others]
et seq. et sequentes [and following]
etc. et cetera [and so on]
FN Footnote
FOB Free on board (Incoterms 1980)
i.e., id est [that is]
ICC International Chamber of Commerce
id. idem [the same]
n. Footnote
NBW Het Nieuw Burgerlijk Wetboek (The Netherlands)
no. Number
OR Obligationenrecht (Switzerland)
OZ Obligacijski zakonik (Slovenia)
p. Page
par. Paragraph
PECL Principles of European Contract Law
ULIS Convention relating to a Uniform Law on the International Sale of Goods (The Hague, 1 July 1964)
UNCITRAL    United Nations Commission on International Trade Law
USA United States of America
v. versus [against]


INDEX OF AUTHORITIES

BLESSING, Marc Das neue internationale Schiedsgerichtsrecht der Schweiz -- Ein Fortschritt oder ein Rückschritt?, in: Böckstiegel (ed.), Die internationale Schiedsgerichtsbarkeit in der Schweiz (II),
Köln, Berlin, Bonn, München 1989; also available at: <http://www.trans-lex.org/output.php?docid=110400>
Cited as: BLESSING
 
CHENGWEI, Liu Remedies for Non-performance: Perspectives from CISG, UNIDROIT Principles & PECL; available at: <http://www.cisg.law.pace.edu/cisg/biblio/chengwei.html>
cited as: CHENGWEI
 
ENDERLEIN, Fritz and MASKOW Dietrich International Sales Law, United Nations Convention on Contracts for the International Sale of Goods, Convention on the Limitation Period in the International Sale of Goods,
Oceana Publications 1992, New York, London, Rome; also available at: <http://www.cisg.law.pace.edu/cisg/biblio/enderlein.html>
Cited as: ENDERLEIN/MASKOW
 
HERBER, Rolf and CZERWENKA Beate Internationales Kaufrecht, Kommentar zu dem Übereinkommen der Vereinten Nationen vom 11. April 1980 über Verträge über den Internationalen Warenkauf, München 1991
Cited as: HERBER/CZERWENKA
 
HONNOLD, O. John Uniform Law for International Sales under the 1980 United Nations Convention, third edition,
Kluwer Law International; 1999; also available at: <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>
Cited as: HONNOLD
 
HUBER, Peter Some Introductory Remarks on the CISG, available at: <http://www.cisg.law.pace.edu/cisg/biblio/huber.html>
cited as: HUBER IN REMARKS
 
JENKS, Edward et al. A Digest of English Civil Law, London, Sydney, Calcutta, Winnipeg, Welington 1921
Cited as: JENKS
 
KNAPP, Victor Article 77; in Cesare Massimo Bianca, Michael Joachim Bonell: Commentary on the International Sales Law -- The 1980 Vienna Sales Convention, Milan 1987, Also available at: <http://www.cisg.law.pace.edu/cisg/biblio/knapp-bb77.html>
Cited as: KNAPP
 
KRITZER, Albert Reasonableness, available at: <http://www.cisg.law.pace.edu/cisg/text/reason.html>
Cited as: KRITZER
 
LOOKOFSKY, Joseph Understanding the CISG, A Compact Guide to the 1980 United Nations Convention on contract for the International Sale of Goods, Third (Worldwide) Edition, Kluwer Law International, 2008 Kluwer Law International
Cited as: LOOKOFSKY IN UNDERSTANDING
 
LOOKOFSKY, Joseph The 1980 United Nations Convention on Contracts for the International Sale of Goods; in J. Herbots / R. Blanpain, International Encyclopaedia of Laws -- Contracts, Suppl. 29 (December 2000), p.1-192. Also available at: <http://www.cisg.law.pace.edu/cisg/biblio/lookofsky.html>
Cited as: LOOKOFSKY IN CONVENTION
 
MAGNUS, Ulrich Art. 77 [Obliegenheit, den Schaden zu mindern]; in H.Honsell et al.: Kommentar zum UN-Kaufrecht, Übereinkommen der Vereinten Nationen über Verträge über den Internationalen Warenverkauf (CISG), Springer Verlag, Berlin, Heidelberg, 1997
Cited as: HONSELL/MAGNUS
 
MAYER, Pierre Mayer, Pierre, Le Principe de Bonne Foi devant les Arbitres du Commerce International, in: Festschrift Pierre Lalive, Basel, Frankfurt am Main 1993, Also available at: <http://tldb.uni-koeln.de/php/pub_show_document.php?page=pub_show_document.php&pubdocid=115700&pubwithtoc=ja&pubwithmeta=ja&pubmarkid=949000#mark949000>
Cited as: MAYER
 
OPIE, Elizabeth Commentary on the manner in which the UNIDROIT Principles may be used to interpret or supplement Article 77 of the CISG, January 2005, available at: <http://www.cisg.law.pace.edu/cisg/principles/uni77.html>
Cited as: OPIE
 
OSMAN, Filiali Les Principes Gènèraux de la Lex Mercatoria, contribution a I 'etude d'un ordre juridique anational, LGDJ, Paris, 1992; Cited as: OSMAN,
 
Pace Law School Institute of International Commercial Law Legislative history of CISG Article 77: Match-up with 1978 Draft to assess relevance of Secretariat Commentary, available at: <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-d-77.html>
Cited as: LEGISLATIVE HISTORY, ART 77
 
POSNER, Richard Ashley Brandt, citing Richard Posner in: What Is My Duty To "Mitigate" My Damages? -- R.R. Donnelley & Sons v. Vanguard Transportation Systems, Part 1; available at: <http://www.illinoisconstructionlawblog.com/2009/08/Articles/what-is-my-duty-to-mitigate-my-damages-rr-donnelley-sons-v-vanguard-transportation-systems-part-1/>
cited as: POSNER, cited in BRANDT
 
SAIDOV, Djakhongir Methods of Limiting Damages under the Vienna Convention on Contracts for the International Sale of Goods, available at: <http://cisgw3.law.pace.edu/cisg/biblio/saidov.html#iv>
Cited as: SAIDOV
 
SCHLECHTRIEM, Peter Uniform Sales Law -- The UN-Convention on Contracts for the International Sale of Goods, available at: <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem-77.html>
Cited as: SCHLECHTRIEM IN UNIFORM SALES LAW
 
SCHLECHTRIEM, Peter Damages, avoidance of the contract and performance interest under the CISG, available at: <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem21.html>
Cited as: SCHLECHTRIEM in DAMAGES
 
SCHLECHTRIEM,Peter Einheitliches UN-Kaufrecht (Das Übereinkommen der Vereinten Nationen über internationale Warenkaufverträge, Tübingen 1982;
cited as: SCHLECHTRIEM IN EINHEITLICHES UN-KAUFRECHT
 
SCHLECHTRIEM, Peter and SCHWENZER, Ingeborg Commentary on the UN Convention on the International Sale of Goods (CISG), second (English) edition, Oxford University Press, 2005
Cited as: SCHLECHTRIEM/SCHWENZER
 
SCHWENZER, Ingeborg and HACHEM, Pascal The CISG -- Successes and Pitfalls, 57 American Journal of Comparative Law (Spring 2009) p.457-478, available at: <http://www.cisg.law.pace.edu/cisg/biblio/schwenzer-hachem.html>
cited as: SCHWENZER, HACHEM
 
STOLL, Hans Stoll in: Caemmerer/Schlechtriem: Kommentar zum Einheitlichen UN-Kaufrecht, C. H. Beck'sche Verlagsbuchhandlung, München 1995
cited as: STOLL IN SCHLECHTRIEM
 
STOLL, Hans and GRUBER Georg Article 77; in Peter Schlechtriem, Ingeborg Schwenzer: Commentary on the UN Convention on the International Sale of Goods (CISG), second edition, Oxford University Press, New York 2005
Cited as: STOLL/GRUBER
 
UNCITRAL Minutes of the 30th Meeting of the First Committee, available at: <http://www.cisg.law.pace.edu/cisg/firstcommittee/Meeting30.html>
Cited as: 30th MEETING
 
UNCITRAL Text of Secretariat Commentary on Article 42 of the 1978 Draft, Official Records of the Vienna Diplomatic Conference at Official Records, UN DOC. A/CONF. 97/5; also available at: <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-46.html>
cited as: COMMENTARY-ART 42
 
UNCITRAL Text of Secretariat Commentary on Article 73 of the 1978 Draft, Official Records of the Vienna Diplomatic Conference at Official Records, UN DOC. A/CONF. 97/5; also available at: <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-77.html>
cited as: COMMENTARY-ART 73
 
WEBER, Rolf Vertragsverletzungsfolgen: Schadenersatz, Rückabwicklung, vertragliche Gestaltungsmöglichkeiten in Wiener Kaufrecht; in Bucher E (ed.): Wiener Kaufrecht, Berner Tage für die Juristische Praxis, Stämpfli, Bern 1990.
Cited as: WEBER
 
ZELLER, Bruno Comparison between the provisions of the CISG on mitigation of losses (Art. 77) and the counterpart provisions of PECL (Art. 9:505), available at: <http://www.cisg.law.pace.edu/cisg/text/peclcomp77.html>
Cited as: ZELLER
 
ZIEGEL, S. Jacob and SAMSON, Claude Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods, July 1981, available at: <http://www.cisg.law.pace.edu/cisg/wais/db/articles/english2.html>
Cited as: ZIEGEL/SAMSON
 

TABLE OF CASES AND ARBITRAL AWARDS

Austria

Oberlandesgericht Graz, 24 January 2002 (Excavator case), § 1.4 n.26; § 4 n.84.

Oberster Gerichtshof, 14 January 2002 (Cooling system case), § 4 n.84, n.88; § 6 n.169.

Oberster Gerichtshof, 6 February 1996 (Propane case), § 4 n.84; § 4.1 n.94.

Vienna Arbitration proceeding SCH-4366, 15 June 1994 (Rolled metal sheets case), § 4.2.1.b) n.105.

Denmark

Sø og Handelsretten, 31 January 2002 (Dr. S. Sergueev Handelsagentur v. DAT-SCHAUB A/S), § 4.3.1 n.146.

Germany

Amtsgericht Alsfeld, 12 May 1995 (Flagstone tiles case), § 6.1 n.177.

Amtsgericht Berlin Tiergarten, 13 March 1997, § 6.1, n.176.

Amtsgericht München, 23 June 1995 (Tetracycline case), § 1.3, n.20; § 4.2.2 n.121; § 4.2.2.a) n.135.

Bundesgerichtshof, 24 March 1999 (Vine wax case), § 1.5 n.32; 4.2.2.a) n. 130.

Bundesgerichtshof, 25 June 1997 (Stainless steel wire case), § 6 n.171.

Landgericht Berlin, 6 October 1992 (Wine case), § 6.1 n.126.

Landgericht Darmstadt, 9 May 2000 (Video recorders case), § 6 n.172.

Landgericht Düsseldorf, 25 August 1994 (Fashion goods case), § 6.1 n.178.

Oberlandesgericht Braunschweig, 28 October 1999 (Frozen meat case), § 4.3.2 n.149.

Oberlandesgericht Celle, 2 September 1998 (Vacuum cleaners case), § 3.2 n.56; § 4.2.2.a) n.131.

Oberlandesgericht Düsseldorf, 14 January 1994 (Shoes case), 4.2.1.b) n.104; § 4.3.1 n.144; § 4.3.2 n.148.

Oberlandesgericht Hamburg, 28 February 1997 (Iron molybdenum case), § 4.3.1 n.145.

Oberlandesgericht Hamm, 22 September 1992 (Frozen bacon case), § 4.1 n.95; § 4.2.1.b) n.105; § 4.2.1.b), n.117

Oberlandesgericht Köln, 21 August 1997 (Aluminium hydroxide case), § 4.2.2.a) n.129.

Oberlandesgericht Köln, 8 January 1997 (Tannery machines case), § 4.2.2.a) n.126.

Schiedsgericht der Handelskammer Hamburg, 21 March 1996 (Chinese goods case), § 4.2.2.b) n.134.

ICC Arbitral Awards

ICC Arbitration case no. 7331 of 1994 (Cowhides case), § 4.2.2.a) n.133.

ICC Arbitration case no. 7585 of 1992 (Foamed board machinery case), § 4.2.2.b) n.137.

ICC Arbitration case no. 8786 of January 1997 (Clothing case), § 4.2.2.a) n.128.

Iran

Iran-United States Claims Tribunal, 28 July 1989 (Watkins-Johnson Co. & Watkins-Johnson Ltd. v. The Islamic Republic of Iran & Bank Saderat Iran), § 1.2 n.18; § 4.2.2.b) n.107.

People's Republic of China

China post-1989 CIETAC Arbitration proceedings (Cloth wind coats case), § 4.2.1.b) n.110.

Russian Federation

Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, 6 June 2000, Arbitration proceeding 406/1998, § 4.2.2.a) n.132.

Spain

Tribunal Supremo, 28 January 2000, (Internationale Jute Maatschappij v. Marin Palomares), § 4.2.1.b) n. 109.

Switzerland

Handelsgericht St. Gallen, 3 December 2002 (Sizing machine case), § 6 n.173.

Kantonsgericht Zug, Switzerland, 12 December 2002 (Methyl tertiary-butyl ether case), § 4.3.1 n. 146.

United States of America

Federal Appellate Court [4th Circuit], 21 June 2002 (Schmitz-Werke v. Rockland), § 4.2.2.a) n.127.

Federal District Court New York, 9 September 1994 (Delchi Carrier v. Rotorex), § 4.2.1.a) n.102.


INDEX OF LEGAL SOURCES

Allgemeines Bürgerliches Gesetzbuch -- Austria (ABGB)

Bürgerliches Gesetzbuch -- Germany (BGB)

Civil Code of Ethiopia

Code civil du Québec -- Quèbec, Canada

Contract Law of the People's Republic of China

Convention relating to a Uniform Law on the International Sale of Goods, The Hague, 1 July 1964 (ULIS)

Het Nieuw Burgerlijk Wetboek -- Netherlands (NBW)

Obligacijski zakonik -- Slovenia (OZ)

Obligationenrecht -- Switzerland (OR)

Principles of European Contract Law (PECL)

Standard Contract for the UK Offshore & Gas Industry, General Conditions of Contract (including Guidance Notes) for Marine Construction

Text of [1978] Draft Convention on Contracts for the International Sale of Goods approved by the United Nations Commission on International Trade

UNIDROIT Convention on International Leasing

United Nations Convention on Contracts For The International Sale of Goods, 1980 (CISG)

Civil Code of the Russian Federation


§ 1 Duty to Mitigate the Loss

"If you invite someone to dinner, and hours after he was due he still hasn't arrived, you had better infer that he isn't coming, and start eating. You can't let yourself and your other guests starve merely because there is a slight chance that he will show up days later." [1]

Today, more and more commercial contracts are governed by the CISG.[2] The Convention came into effect on 1 January, 1988 [3] and it is the first treaty concerning sales law to win acceptance on a worldwide scale.[4] As of this writing, 74 states are parties to the CISG, among them both industrial nations and developing states, Japan being the most recently joined member.[5] Together, these 74 countries account for about seventy to eighty percent of all international sale transactions, with many of these transactions governed by this Convention, due to the possibility of default application in international sales context.[6]

Due to the vast number of the commercial transactions that fall within the scope of the Convention, there are numerous cases of breach of contract governed by it. This thesis focuses on the duty to mitigate damages in international sale transactions as governed by Article 77 of the Convention. The party relying on the breach is required to undertake reasonable measures to mitigate loss that could have been avoided had such measures been undertaken. The thesis places particular emphasis on the reasonableness of measures undertaken by the aggrieved party to mitigate the loss.

§ 1.1 CISG Provisions Regarding Damages Claims

When one of the contracting parties has breached the contract, the aggrieved party can assert certain remedies for the breach. Article 45(1) CISG provides the aggrieved buyer with an option to exercise the rights provided in Articles 46 to 52 [7] and claim damages as provided in Articles 74 to 77 in case the seller fails to perform any of her obligations under the contract or the CISG. A similar provision regarding a breaching buyer is articulated in Article 61(1) CISG. Both Article 46(2) and Article 61(2) provide that the aggrieved party is not deprived of any right she may have to claim damages by exercising her right to other remedies.[8]

Damages arising from a breach of contract governed by the CISG can be claimed under Articles 74, 75 and 76 CISG.[9] If the aggrieved party declares the contract avoided as a remedy to the breach,[10] she can claim damages instead of performance under Article 81(1) CISG.[11]

§ 1.2 Duty to Mitigate

The aggrieved party cannot sit idly while the losses resulting from the breach of contract accumulate and then expect to be entitled to recover the losses that could have been avoided. Instead, she is generally required to undertake all measures that are reasonable in the circumstances, to mitigate the loss resulting from the breach. According to Chengwei Liu, "even where the aggrieved party has not contributed either to the non-performance or to its effects, [she] cannot recover for loss [she] would have avoided if [she] had taken reasonable steps to do so."[12] If the aggrieved party fails to satisfactorily mitigate the loss she is likely to be precluded from recovering those avoidable losses -- i.e., that harm which, while caused by the breach, could have been reduced by undertaking suitable measures.

The obligation of the party relying on the breach to prevent further loss from occurring by undertaking reasonable measures can be found in most legal systems [13] and projects for the harmonization of law around the world;[14] it is. however, expressed in different ways. Honnold suggests that many codes do not explicitly characterize the duty to mitigate loss. Instead, the principle that a party is "responsible for the damage [she] causes, often provides a basis for concluding that some of the damage was caused by the plaintiff rather than the party in breach. Similarly, some systems limit the plaintiff's recovery by principles akin to what other legal systems call contributory negligence -- e.g., the French doctrine of faute de la victime."[15] The duty to mitigate is a fundamental principle of the lex mercatoria [16] and is also one of the most applied principles in international arbitration.[17] Courts and arbitration tribunals generally assume that the duty to mitigate is a part of general trade usage.[18]

§ 1.3 Duty to Mitigate in the CISG

The promisee's duty to mitigate damages is an "expression of the general principle of good faith in international commerce (cf. Article 7(1))".[19] Zeller suggests that "if a person takes steps which are in good faith [...] he has acted reasonably; specifically, if the measures adequately prevent losses."[20] Namely, the party relying on the breach cannot passively await "incurrence of the loss and then sue for damages. She is obliged to take adequate preventive measures to mitigate [her] loss."[21] The principle of good faith suggests that there should be no compensation for avoidable loss.[22] The loss is not to be compensated to the extent that it could have been reduced by undertaking reasonable measures.[23] If, however, the mitigation measures the aggrieved party has taken are shown to have insufficiently avoided damages in cases where undertaking further mitigation measures would have been reasonable, the damages will be reduced to the extent to which the loss could have been mitigated. Any loss that could have been entirely prevented cannot be recovered at all.[24]

§ 1.4 No 'Obligation to Mitigate the Loss' as Such

Article 77 is one of several Articles that provide for "a duty owed by the injured party to the party in breach."[25] However, the duty to mitigate is not an actual duty against others, but rather a measure to be taken in the aggrieved party's own interest.[26] It cannot be considered a duty as such [27] as it merely limits the damages by compensating the loss to the extent that it could have been avoided by undertaking reasonable measures. Therefore, failure to undertake suitable mitigation measures does not result in the aggrieved party's liability to pay damages but rather in preclusion of recovery of any loss that could have been prevented.[28] According to Lookofsky, if there was a real obligation (duty) to mitigate, the Convention would have to provide a remedy for the breach of that obligation.[29]

§ 1.5 Ex Officio

Failure to mitigate avoidable damages leads to the exclusion of avoidable damages from the sum of recoverable damages. Stoll and Gruber note that "the words 'the party in breach may claim a reduction in damages' should not be understood to mean that a claim to reduction only becomes effective with the consent of the promisee or by judgement of the court."[30] Although the wording of the second sentence of Article 77 suggests that the aggrieved party must assert the claim for the reduction of avoidable damages, the claim must be considered ex officio.[31] The German Supreme Court stated in a case, that "CISG Article 77 establishes a defense that may exclude a claim and must be considered sua sponte."[32]

However, the promisor still bears the burden of proving that the conditions for a mitigation claim exist, i.e., that the promisee has not undertaken all reasonable measures to mitigate the loss.[33]

§ 2 Legislative History

The principle of mitigation of damages as stipulated in Article 77 is analogous to that of Article 88 ULIS.[34] The Articles are very similar. As stated by Knapp, Article 77 CISG added to the wording of Article 88 ULIS to clarify, that the loss which is to be mitigated includes not only loss of assets (damnum emergens) but also loss of profit (lucrum cessans).[35] Stoll and Gruber advise that, although the phrase 'loss resulting from the breach' appears in English versions of both texts equally, a change in the French version has been made. The change in the French versions from 'la perte subie' of ULIS Article 88 to 'la perte … résultant de la contravention' suggests that the promisee is required not only to undertake reasonable measures to mitigate loss that has already occurred but also to mitigate imminent loss.[36]

Furthermore, under Article 61(2) ULIS the seller had an obligation to resell the goods if it was in conformity with usage and reasonably possible, otherwise she could not claim payment of the purchase price.[37] According to CISG provisions, the seller may well be able to claim the price for the duty to mitigate as provided by Article 77 only applies to claims for damages.[38]

Article 77 CISG is analogous to Article 73 of the UNCITRAL draft of the Convention.[39] When the delegates met at the Vienna Diplomatic Conference they considered this draft of the Convention that was accompanied by the Secretariat Commentary.[40]

At this Diplomatic Conference, the United States delegation suggested that although the principle of mitigation was an important general principle, Article 73 [now CISG Article 77 ] was not very clear as it stood, for it might have lead to the conclusion that if the injured party failed to undertake reasonable mitigation measures, "the party in breach could only claim a reduction in the damages and could not rely on such failure in connection with the other remedies open to him, for example, the right to reduce the price."[41] Therefore the United States delegation suggested that an amendment be made to the text by adding "or a corresponding modification or adjustment of any other remedy" which would ensure the application of the mitigation principle to the promisee's other remedies, including her right to claim performance. This proposal did not receive the necessary majority and was therefore rejected.[42] As a result, the promisee generally retains her right to claim performance even if she had failed to mitigate the loss resulting from the promisor's breach.[43]

§ 3 Scope of Application

§ 3.1 Damages Resulting from a Breach of Contract

The duty to mitigate damages applies to all cases of liability where damages are to be paid as a result of a breach of a CISG governed contract.[44] The party relying on the breach is to undertake suitable mitigation measures not only after a loss has occurred, but also before it arises.[45] Measures to mitigate the loss are to be undertaken as soon as the promisee can foresee the breach of contract by the other party.[46] Weber suggests that the duty to mitigate does not arise only after the breach of contract but exists throughout the duration of contract.[47] However, there are also a number of decisions that suggest that the promisee is not obliged to mitigate before the contract is avoided.[48]

In contrast to the analogous provision of Article 88 ULIS, it is clear from the wording of Article 77 CISG that compensation is limited for all damages that the promisee is entitled to recover by the scope of Article 74 (damnum emergens and lucrum cessans).[49]

§ 3.2 No Application to other Measures -- Effect of Right to Require Performance

Article 77 appears in Section II (Damages) of Chapter V. Hence, the duty to mitigate does not apply to other remedies that are available under the Convention (e.g., claim for the price by the seller pursuant to Article 62 or a reduction of the price by the buyer pursuant to Article 50).[50] It applies solely to the promisor's liability to pay damages resulting from a breach.[51] Therefore, failure to mitigate the loss does not prevent the aggrieved party from asserting other remedies.[52]

However, this gives rise to a conflict of two principles:[53] (1) The obligation of the aggrieved party to mitigate the loss and (2) The right of the aggrieved party to require performance. At the Diplomatic Conference, the United States delegation made a proposal to apply the mitigation principle to remedies other than damages,[54] especially for the actions for payment of price. This proposal, however, did not receive the necessary majority of votes and was therefore rejected.[55] As Article 77 now stands, a seller that is insisting on performance need not fear that the action for payment of price would be mitigated.[56] The promisee's right to claim performance from the breaching party "in principle continues in full force, even where avoidance of the contract and a claim for damages would be less burdensome for the promisor, but the promisee does not take that course of action".[57]

There is no general obligation to avoid a contract under the CISG nor is there an indirect obligation to "surrender a right to performance in order to relieve the promisor".[58] However in some cases where it was certain that the buyer will fail to perform, avoidance of contract has been found a reasonable mitigation measure. In a case before the Munich Appellate Court [59] it was found that the seller failed to mitigate her loss by failure to exercise her rights vis-a-vis the buyer pursuant to Article 61(1)(a), hence the seller lost her claim to damages as she should have mitigated the loss completely.

Under Article 61(2) ULIS, the seller's possibility to claim the payment of price depended in principle on whether it was reasonable to resell the goods.[60] The fact that this obligation does not exist under the CISG can hardly be regarded as accidental.[61] It is therefore safe to assume that the duty to mitigate generally only applies to claims for damages.

It is suggested by Stoll and Gruber that problems arise particularly in cases concerning contracts for work and materials where the goods have been made according to individual specifications and are not suitable for reselling.

Example 1: In a case regarding a sale of production machinery where the buyer had to change her production line because of a change in market conditions, the buyer can "neither use or sell machinery made according to her individual specifications and will therefore refuse to take over the goods."[62] The majority opinion is that, in this situation, the seller need not avoid the contract and surrender her claim for the price to be able to claim performance as stipulated by the contract. She may continue the production according to the contractual obligations, deliver the goods and claim the price. However, if such action by the aggrieved party could be considered as contrary to the principle of good faith in international trade, this claim may well be precluded by the direct effect of Article 7(1).[63] The aggrieved party will in this case very likely be precluded from recovering any damages resulting from her omission to stop the production. Stoll and Gruber suggest that it is "sufficient that [the seller] retains [her] claim to the price [...] to fully satisfy [her] interest in profit. […] according to the principle of good faith in commerce [she] is required to deduct only the benefits which [she] can be shown to have gained by not completing the work or which [she] could have reasonably gained by employing the resultant free capacity for other uses from the price."[64]

Example 2: The buyer realises that the market price of the goods is dropping. Therefore she asks the seller not to deliver and proposes to pay any damages that would incur due to the avoidance of contract. In this case, the buyer cannot escape her obligation for performance (payment of the price). Her request constitutes a mere proposal to avoid the contract by mutual agreement.[65] The seller may still be able to claim the taking over of the goods and payment of the full price (specific performance) under Article 62 without making a cover transaction because the duty to mitigate does not normally extend to the claim for performance (payment of price). The same principle applies in situations where the contract has been breached by the seller (the buyer can claim specific performance according to the provision of Article 46).

The outcome is not so certain in cases where the aggrieved party could well be found to have acted contrary to business usages in international trade or the principle of good faith.

Example 3:[66] Honnold provides an example where a producer of steel was supposed to deliver steel girders for the price of $50,000 to the buyer who was a building contractor. The girders were to be cut in special dimensions, provided by the buyer. Before the seller had started production of the girders, the buyer's customer repudiated the building contract. Thereupon the buyer promptly requested the seller not to cut the girders. The seller ignored the buyer's request and cut them, thereby substantially lowering their value. As the buyer refused to accept, the seller resold the girders at the price of only $10,000, because they were cut in unusual dimensions. The seller thereupon claimed damages in the sum of $40,000.

Regarding situations similar to the example listed above, Honnold advises that they must be distinguished from situations where the Court would under its own law enter a judgment for specific performance and where the Court would not do so under its own law.[67] The Court is, namely, according to the provision of Article 28, not bound to enter a judgment for specific performance unless it would do so under its own law in respect of similar contracts of sale not governed by the CISG.

In a case where the legal rules in the State where the competent Court is located cannot allow for a judgment of specific performance, the seller would only be able to claim damages for the breach of contract; hence, the Court would consider if the seller had undertaken all reasonable measures to mitigate the loss.[68] In the case at hand, the seller's conduct should clearly be described as wasteful and should as such be considered inconsistent with normal business conduct. A reasonable person in the same circumstances would have most certainly acted differently.[69] As the seller had failed to undertake reasonable mitigation measures, she would be precluded from asserting a claim regarding the avoidable damages.[70]

However, in cases where the competent court generally grants requests for specific performance, the conflict that arises between the obligation of an aggrieved party to mitigate the loss and the right of the aggrieved party to require performance makes the situation much more complex. Adopting the solution that does the least violence to either principle seems to be the most appropriate response.[71] As the principle of mitigation only applies to claims for damages, the seller would generally be able to claim performance, i.e., acceptance of goods and payment of the purchase price. Stoll suggests that the right to claim performance from the promisor in breach continues "even where avoidance of the contract and a claim for damages would be less burdensome for the promisor. Generally, the promisee's insistence on performance of the contract cannot be criticised as a failure to mitigate the loss even if [she] subsequently avoids the contract and claims damages."[72]

In cases where the seller has acted grossly against the principle of good faith in international trade,[73] it would be contrary to the said principle to merely award her the purchase price. One of the solutions could be the buyer's counterclaim for the damages which the seller has caused by her inactivity. It is suggested by some authors that the solution to this problem is to treat the obligation to mitigate losses as a "genuine obligation whose breach will entail the obligation to compensate for damage [under Article 73]. In the case of the example given, the buyer would have to pay the full price, but [she] would also have the right to claim damages."[74] Nonetheless, it remains uncertain how a court would rule in a similar case.

§ 3.3 Delimitation to Article 80

Article 80 applies to cases where the promisee has contributed to the failure to perform.[75] Article 77 on the other hand applies to cases where the promisee has not undertaken reasonable measures to prevent or reduce the loss occurred because of the failure to perform which was caused solely by the promisor. It is noted by Stoll and Gruber that "the CISG thus basically follows the differentiation, well-known in many legal systems, between 'contributory negligence' and 'avoidance of loss'."[76]

§ 3.4 Duty to Preserve Goods

Articles 85-88 CISG require the parties to take reasonable steps to preserve the goods in their possession following the breach, thus also requiring the promisee to undertake measures against losses. However, in certain cases, even if the aggrieved party is not bound by the duty to preserve goods under Articles 85-88, she may still be required to undertake reasonable measures to preserve goods (mitigate loss) under Article 77.[77]

§ 4 Reasonableness of the Measures Undertaken by the Party Relying on the Breach to Mitigate the Loss

Article 77 requires the aggrieved party to perform "such measures as are reasonable in the circumstances" to mitigate the loss. Although the notion of "reasonableness" is specifically mentioned in thirty-seven provisions of the CISG,[78] the treaty contains no definition of the term.[79] Zeller suggests that "this is not a question of law but rather a question of fact" as every case will have different circumstances; therefore, it is "within the court's discretion to evaluate measures of mitigation."[80] In Opie's opinion these circumstances include "[the amount of] time within which [the] action was undertaken to diminish an avoidable loss and whether a substitute transaction was conducted on an arm's length basis." Also, the reasonableness of the measures is to be interpreted "taking into account the competing interests of the parties, as well as commercial customs and the principle of good faith."[81]

When ascertaining whether the measures that were undertaken were reasonable in the circumstances, due consideration is to be given to the general provisions of the CISG, in particular, those of Articles 7 and 9.[82] The obligation to mitigate avoidable loss is to be interpreted taking into account the competing interests of the parties, as well as commercial customs and the principle of good faith.[83] The promisee is therefore only required to undertake those measures that could be expected in the same circumstances from a reasonable person acting in good faith.[84] The measures will be found reasonable if a reasonable person of the same kind and in the same circumstances would have undertaken them "with any relevant trade usages being taken into account."[85] Hence, the promisee is not required to undertake measures which might well mitigate the loss but would require excessive and unreasonable efforts and costs.[86] If the aggrieved party refrains from undertaking excessive measures, she should not be found to have breached her duty to mitigate.[87] Moreover, she may generally also be unable to recover costs that were, albeit they have mitigated damages, unreasonably high.[88]

Furthermore, different types of factors are to be considered (such as perishability of the goods, fluctuation in market price, availability of a specific market, third party obligations, etc.).[89] The list of appropriate measures can therefore hardly be considered exhaustive. Consequently, a decision on the reasonableness of the mitigation measures is to be assessed on the basis of examination of all the circumstances of the case, the criterion of reasonableness and the type of loss in question.[90] Lookofsky notes that the extent to which a given loss is avoidable "may depend in part on the buyer's ingenuity, experience, and financial resources (ability to obtain credit quickly, etc.); so the question of what constitutes 'reasonable' mitigation will depend on the court's evaluation of the situation in the concrete case."[91]

If the promisee undertakes some mitigation measures, however, and it would have been reasonable to undertake additional measures to mitigate the loss further, the damages are to be reduced by the difference between the amount of loss that should have been mitigated and the amount of loss that has actually been mitigated.[92]

§ 4.1 Burden of Proof

While the aggrieved party has the burden of proving the breach of contract and the consequential damages, it is up to the promisor to prove that the promisee should have mitigated the loss and the extent to which she should have done so. According to most decisions, the party in breach must show that the promisee has not performed her duty to mitigate, how she should have acted to mitigate the loss and which loss should have been mitigated.[93] The Austrian Supreme Court stated in a decision that "The claim of the breach of the duty to mitigate damages is an exception leading to the loss of the claim for damages. It requires the [sellers] to put forward detailed facts and the supporting evidence showing why the [buyer] has breached [her] duty to mitigate damages, the possibilities of alternative conduct and which part of the damages would have been prevented by this alternative conduct."[94] The Appellate Court of Hamm ruled that the burden of proving the reasonableness of the measures is to be borne by the plaintiff.[95]

§ 4.2 Appropriate Measures to Mitigate the Loss

§ 4.2.1 A Substitute (Cover) Transaction

Article 77 may impose an obligation on the aggrieved party to conclude a substitute transaction,[96] especially in a situation where a substitute transaction would avoid consequential losses following the non-performance or defective performance of the contract, e.g., exposure to damages claims by sub-customers or a loss of profit.[97]

If the goods obtained by a substitute purchase are merely meant to complement the seller's performance, the aggrieved party might well be found to have complied with her duty to mitigate. An example by Huber: "seller has not delivered, buyer needs the goods for [her] production process and orders a certain quantity to bridge the gap until the seller will make delivery."[98]

However, if the nature of a suggested substitute transaction is such that its effects are meant to entirely replace those of the original transaction (e.g., if the goods obtained by the substitute purchase are meant to replace the goods originally stipulated by the seller), the aggrieved party nevertheless remains entitled to demand specific performance and need not avoid the contract (thereby losing her claim for performance) in order to enter into a timely substitute transaction.[99] According to Stoll and Gruber, the aggrieved party may "basically continue to require performance without infringing on the requirement to mitigate losses under Article 77."[100] In Magnus' opinion, performance should be given priority and therefore a declaration of avoidance and a substitute transaction will only be required from the aggrieved party in special circumstances, e.g., when the market price of the goods is fluctuating rapidly.[101]

a) A Cover Purchase by the Buyer

The aggrieved party is only required to undertake reasonable measures to mitigate the loss. However, the reasonableness of the measures varies and depends on the circumstances of each separate case. Case-law provides numerous decisions regarding the reasonableness of the measures the aggrieved party has or should have undertaken to mitigate loss. A substitute transaction may often be considered a measure, reasonable in the circumstances. These are some of the decisions where a substitute purchase of the goods elsewhere was found reasonable:

Case 1:[102] The seller (defendant) and the buyer (plaintiff) entered into a contract for the sale of compressors to install in air-conditioners manufactured by the buyer. The contract called for delivery in three shipments. While the second shipment was on the way, the buyer realized that the compressors in the first shipment were not in conformity with the contract. The buyer rejected the second shipment and stored it at the port of delivery while unsuccessfully trying to cure the defects of the first shipment. As she had no compressors and was unable to obtain substitute compressors from other sources in time, the buyer had to shut down her assembly line. As soon as the buyer could expedite shipment of previously ordered compressors from a different seller, she modified the electrical panels of the air-conditioners and installed the newly ordered compressors. Additional costs were incurred because of the necessary modification. The court granted the buyer damages covering (1) the costs of the attempt, although non-successful, to remedy the non-conformity; (2) the costs of the cover purchase of the compressors; (3) the costs of handling and storing of non-conforming compressors; (4) lost profits because of the shutting-down of the production line. The buyer, however, was not granted reimbursement of the costs of modification of the air-conditioners as she had, in the court's opinion, failed to show that this modification was indeed necessary and was a result of the seller's breach.

b) A Resale by the Seller

As decisions have found, the most typical mitigation measure expected from the aggrieved seller is a resale of the goods. In a decision before the Appellate Court of Düsseldorf, it was found that the seller had complied with the duty to mitigate the loss by performing a cover transaction.[103]

Case 2:[104] An Austrian seller and a German buyer concluded several contracts for sale of rolled metal sheets which provided for delivery and payment in installments. After a few shipments had been delivered, the buyer failed to pay the price and refused to take over the subsequent shipments. After having unsuccessfully demanded that the buyer take delivery of the remaining goods, the seller conducted a cover sale and claimed payment of the difference between the contractually agreed price and the proceeds of the cover sale. The tribunal found that not only was this claim justified but also that it might even be considered as a necessary measure.

Case 3:[105] A German buyer ordered wrapped bacon from an Italian seller. The seller's reply referred instead to unwrapped bacon, however, in her reply to the seller, the buyer did not object to the change of terms of contract. After delivery of approximately 40% of the goods had been made, the buyer refused to accept the rest of the goods. Therefore, the seller conducted a substitute sale. The court found that the seller was "obliged to conduct a beneficial cover transaction as far as this is possible and reasonable." The buyer stated that the seller had indeed sold the meat at a price higher than the contract price and the market price. However, she was unable to prove this statement.[106] Upon considering the statements of the witnesses as well as the circumstances of the case, the court found that the seller conducted a substitute sale at a price lower than the market price (0.35 DM per kg), however, it also found that it was impossible for the seller to conduct a beneficial cover transaction at a price over the market price (1.13 DM).

Case 4:[107] The Islamic Republic of Iran and an United States of America company concluded a contract regarding sale of electronic equipment used for a military program. After the Islamic Republic of Iran had failed to pay a substantial amount of the price as well as to provide satisfactory assurances that the payment would be forthcoming, the seller conducted a substitute sale. The tribunal found that the seller's "right to sell undelivered equipment in mitigation of [her] damages is consistent with recognized international law of commercial contracts. [...] Based on the evidence before it, the tribunal is further convinced that [seller] made a reasonable effort in selling the equipment. The invoices presented by [seller] demonstrate sufficiently the effort to find buyers for the equipment all over the world. A substantial part of the equipment was sold, even though for less that the Contract price agreed with Iran. [The seller] explained to the tribunal's satisfaction that much of the equipment was modified or designed according to the specifications of the Iranian Air Force and, therefore, difficult to sell to other customers."

However, in certain circumstances, an aggrieved seller conducting a cover sale was found to have failed to mitigate damages properly. If the breaching buyer offers to take over the goods or a part of the goods at a lower price which is still higher than the current market price, the seller is by Article 77 obliged to accept this offer. According to Stoll and Gruber, the seller can "only claim the difference between the price offered by the buyer and the price obtained by the substitute transaction" if she does not accept this offer.[108] In a case before the Spanish Supreme Court, the aggrieved seller was found not to have mitigated damages properly by conducting a cover sale at a price that was lower than the price offered by the breaching buyer, after the latter had tried to amend the contract:

Case 5:[109] A Spanish buyer and a Dutch seller concluded a contract of sale of 800,000 sacks of jute at a price of $0.559 per bag. Subsequently, the buyer proposed to reduce the contractually agreed price of a vast part of the goods (724,800 sacks) at a price of 70 pesetas per unit. The seller did not accept this proposal and attempted to condition buyer's payment on the issuance of a letter of credit to cover the purchase price agreed in the contract. Thereupon, the seller resold the goods to a substitute buyer for a very inferior price ($0.30) after only a few days. The court found that by selling goods at a price inferior to the price that was offered by the original buyer, the seller had failed to comply with its duty to mitigate damages. The seller was awarded damages incurred due to the buyer's breach of contract reduced by the difference in the price offered by the buyer and the price at which the goods were sold to the substitute buyer.

As the reasonableness of the cover transaction depends on the circumstances of each specific case, a cover sale has also been found a non-reasonable measure that the seller relying on the breach was not expected to perform. In a CIETAC Arbitration proceeding, the seller was found not to have breached her duty to mitigate by not reselling the wind coats that were made exclusively to buyer's specifications:

Case 6:[110] A Chinese seller and a foreign buyer entered into a contract regarding the sale of cloth wind coats. After delivery, the buyer claimed that the color was not in conformity with the contract, notified the seller of the lack of conformity and refused to accept the goods. The tribunal found that the goods were in fact in conformity with the contract and that the buyer had breached the contract by refusing to take delivery. As the contract provided that the goods were to be delivered FOB Fuzhou (Incoterms 1980),[111] the buyer's responsibility was to provide for the shipping, however, she failed to do so. As a result, the seller incurred expenses by storing the goods in a warehouse. As for mitigation of the damages, the tribunal found that "because the goods under the contract were manufactured in accordance with the specification provided by the buyer, it is not easy for seller to sell the goods to mitigate the losses. Therefore, the Arbitration Tribunal is of the opinion that the amount of damages and the interest claimed by seller are reasonable."[112]

Where the seller markets the goods to multiple clients and regularly concludes similar transactions, it has been found that the seller has not failed to comply with the duty to mitigate by not reselling the goods, for a substitute transaction would mean loss of profit as the other sale would have taken place regardless of the cover transaction. The seller should generally be able to recover not only the difference between the price of the original sale and the resale but also consequential damages for the loss of profit (resulting from the fact that she had lost an opportunity to sell other goods that she has at her disposal).[113]

Case 7:[114] A German seller and an Austrian buyer entered into several contracts of sale of jewellery. The general conditions which were expressly made part of the contract, required the purchase price to be paid in advance. The buyer sent the seller two checks for the amount of two invoices, however the seller's bank refused to cash the checks due to insufficient funds in the account. After reminding the buyers unsuccessfully, the seller fixed an additional period of time (the so-called 'Nachfrist'). The buyer refused to pay in advance, claiming that the parties had agreed on payment after delivery. Thereupon, the seller claimed damages resulting from the breach of contract, specifically the loss of profit amounting to DM 21,314.75 -- the difference between the purchase price and costs of manufacturing. Regarding buyer's claim that the seller had failed to mitigate the loss properly by reselling the goods "far under value" the court found that "This damage arises regardless of a possible resale of the goods ordered to a subsequent buyer, as the later contract would have been formed independently of [the buyer's] order. [...] There have been no ascertained substitute transactions by [seller]. [The buyer's] objection that [the seller] failed in [her] duty to mitigate the damages is completely unsubstantiated. The fact alone that -- possibly long after the dispute arose between the parties -- some goods have been sold, cannot be considered to prove a substitute transaction. In the case of marketable goods, it is more likely that the alternative sale would also have taken place had the [buyer] accepted the goods." The court concluded that the buyer's claim regarding mitigation of damages is "ineffective as far as the promisee, in performing the substitute transaction, would have lost another similar transaction bringing the same profit as the first transaction."

Under Article 76, if (1) the contract has been avoided, (2) there is a current price for the goods and (3) the promisee has not made a purchase or resale under Article 75, she may recover the difference between the price fixed by the contract and the current price at the time of avoidance.[115] Stoll and Gruber suggest that a promisee who is claiming damages under Article 76 may be exposed to an objection that she has failed to conclude a substitute transaction under the obligation of Article 77. They note that the abstract calculation of loss under Article 76 is subsidiary to concrete calculation and it can therefore be assumed that the method that is more favorable to the promisor is to be used, provided that a cover sale is considered a mitigation measure, reasonable in the circumstances.[116] This opinion was shared in a case before the Oberlandesgericht Hamm, where this Appellate Court found that the buyer "rightfully points out […] that such abstract calculation of damages according to Article 76 CISG is only subsidiary. Primarily, the calculation of exact damages, specified in Article 75 CISG, prevails, based on a real cover transaction."[117]

As regards the calculation of damages under Article 76, Stoll and Gruber suggest that when the difference between the price fixed by the contract and the market price at the time of avoidance (loss calculation under Article 76) is smaller than the amount of loss that could have been mitigated according to the provision of Article 77, the amount of damages should be whichever is more favourable for the promisor.[118]

§ 4.2.2 Other Measures -- in General

A party relying on the breach may be required to undertake legal measures against acts of state that are hindering the breaching party in fulfilling her contractual obligations.[119] Stoll and Gruber suggest that the injured party is not required to undertake measures that "lie in the other party's sphere of responsibility and that the other party can take without difficulty."[120] In the "Tetracycline case" it was found that the buyer cannot be held responsible for the delay in returning the goods caused by the freight company as the "freight contract [..] needs to be viewed as a transaction made to execute the [seller]'s commission and not as a transaction for the [buyer]'s own account. Consequently, the [buyer] was merely obliged to commission the freight order, but was not liable for the orderly performance of that contract."[121]

Even if the other contracting party is in fundamental breach of the contract, no party is generally obliged to avoid the contract and lose her claim to performance in order to enter into a timely substitute transaction. The application of Article 77 is justified if the promisee delays avoiding the contract (and entering into a timely substitute transaction) in a speculative manner and without a plausible reason, when it was reasonable and possible to do so.[122] As avoidance of the contract may in certain circumstances be considered a reasonable measure to mitigate the loss, the promisee might not be able to claim the incurred damages in full. However, it is very likely that she would be able to claim performance.[123]

a) Other Measures Undertaken by the Buyer

Numerous mitigation measures have been expected from aggrieved buyers when relying on damages resulting from seller's breach of contract. In case of delivery of non-conforming goods, the buyer may be obliged to repair the goods himself in order to prevent them from worsening or to avoid consequential losses.[124] In a situation where the seller is unable to hand the goods over to the carrier in due time, the buyer might be expected to arrange for the carriage of the goods or take delivery at the place of goods herself.[125] Further examples are listed below:

The Appellate Court of Köln found that a buyer had conformed to her duty to mitigate by contracting another party to treat the leather hides after seller's refusal to return the tanning machines and awarded the buyer damages in the sum of costs incurred by commissioning a third party for the tanning of the hides.

Case 8:[126] The buyer (defendant) and the seller (plaintiff) entered into a contract for the sale of tanning machines. After the machines had already been delivered, the seller recovered the machines in order to make adjustments to them. After she had failed to return the machines within the agreed period of time, the buyer contracted another leather manufacturer to treat the leather. When the seller claimed payment of the purchase price, the buyer set off a counterclaim for the damages suffered by the seller's failure to return the machines. The seller thereupon claimed the right of retention of the machines and the purchase price. The Court found the buyer had complied with her duty to mitigate and awarded her full compensation for the loss resulting from the breach.

In another case, the buyer was found not to have breached her duty to mitigate loss by continuing to print on the non-conforming fabric, even after having discovered the non-conformity.

Case 9:[127] The buyer, a German manufacturer of clothes, and the seller, a U.S. fabric manufacturer, concluded a contract for the sale of drapery lining fabric. During the negotiations, the seller's representative stated that the fabric was "particularly suited to be a printing base for transfer printing," which turned out not to be true. The court found that the seller had breached the contract under Article 35(2)(b) CISG by delivering fabric which was not suitable to be printed on. The buyer was found to have undertaken reasonable measures to mitigate the loss by continuing to print on the fabric even after having discovered the problems since it was "at the express urging of the seller and was in any way the best way to mitigate [her] damages."

A further measure that was considered appropriate was offering the sub-buyer a reduction of ten percent in the purchase price of the goods, because of the late delivery.

Case 10:[128] The seller failed to deliver the goods in the agreed time and instead delivered after the season for the sale had already ended. Because of the late delivery, the buyer reduced the price by 10 percent when reselling the goods to her sub-buyers. The tribunal ruled that by doing so, the buyer had fulfilled her duty to mitigate and granted the buyer damages in the difference between the price paid and the price obtained at the sale.

In the above cases, the buyer was found to have acted in accordance with Article 77 when mitigating the loss. In the following cases, however, it was established that the buyer failed to undertake reasonable measures to mitigate the loss. The damages were therefore reduced accordingly.

Case 11:[129] In a case before the Appellate Court of Köln, a buyer of aluminium hydroxide was found not to have performed adequate mitigation measures by failing to examine separate shipments of goods before mixing them together. As the buyer kept all her aluminium hydroxide supplies in the same silo, all of her supplies were contaminated by adding the non-conforming goods. On the question of timeliness of the inspection, the court stated that an immediate inspection was necessary even if all the goods in the silo originated from the same seller, if the goods were going to be mixed together with goods from other shipments. It would have been reasonable to inspect the goods before adding them to the silo because the inspection consisted of simple tests.

Another buyer was found to have failed to comply with the duty to mitigate by continuing to use defective vine wax even after becoming aware of the non-conformity.

Case 12:[130] A German seller and an Austrian buyer that had had a business relationship for many years concluded a contract of sale for 5,000 kg of black vine wax. The Austrian buyer ran a vine nursery dealing, i.a., with the breeding and refinement of vines. The special vine wax is intended to protect the vines from drying out and reduce the risk of infection. The shipment of the wax originating from this contract proved to be defective. After half of the vines were treated, the seller learned about the defect, however, she continued to use the defective vine wax. Because the Court of Appeals had failed to deal with the question of mitigation as part of the decision as to the existence of a cause of action, the Supreme Court of the Federal Republic of Germany reversed the decision of the Court of Appeals and remanded the case for further trial and decision.

The buyer might also be expected to look for replacement goods in markets other than the local region. A court found a buyer to have failed to comply with her duty to mitigate by only seeking substitute goods in the local area, especially since she made the original purchase from a foreign company.

Case 13:[131] A Dutch seller and a German buyer concluded a contract for sale of vacuum cleaners. After delivery, the vacuum cleaners proved to be defective due to the lack of vacuuming power. The buyer delivered the machines to her branches and discovered the non-conformity only after the vacuum cleaners had been returned from the end-users. The buyer failed to make a cover purchase and asserted that a cover purchase of that same brand of vacuum cleaners was not possible at the time in Göttingen, Lower Saxony and North Hesse. The court found this assertion to be insufficient and maintained that "the [buyer] purchased from a Dutch seller in the present case therefore offers from foreign countries, at least from all of Germany, should have been considered. It is decisive that the [buyer] does not offer any explanation regarding [her] efforts to instigate a substitute purchase."

Cancelling the contract of sale with the buyer's sub-buyer was found to be another measure the buyer was expected to perform.[132] In an arbitration award, the damages were reduced due to the buyer's failure to provide evidence of the reduction of the price that she received from her sub-buyer for non-conforming goods:

Case 14:[133] The seller, a Yugoslav company, had contracted for a reconstruction of a factory in Russia and was eventually paid for the reconstruction works in cowhides. The Russian company suggested that the seller sell the hides to a buyer in Italy who was in a business relationship with the Russian company which the seller promptly agreed to do. As the seller was primarily a construction company, it was not familiar with the product. After the goods had been delivered, the buyer had the hides examined and was told in an inspector's report that the hides were defective, however the buyer failed to present this report to the seller. The court found that the buyer failed to mitigate damages because "while admitting that the [buyer] sold the allegedly defective goods, the [buyer] never presented any evidence of the amount obtained for such goods ..."

In the following cases, the buyer was found not to have failed to mitigate damages properly, because further mitigation would have required her to undertake excessive measures that could not have been considered reasonable in the circumstances.

Case 15:[134] The seller, a Hong Kong company, and a German buyer concluded a general agreement regarding delivery and supplying of Chinese goods. After facing financial difficulties, the seller's supplier failed to deliver the goods. Therefore, the seller failed to perform. Upon the seller's request for payment of previously delivered goods, the buyer set off a counterclaim regarding compensation for lost profits resulting from the seller's failure to deliver goods. The court found that by not acquiring the goods elsewhere, the buyer did not breach her duty to mitigate, stating that "taking into consideration the short delivery time in the contract and the alleged difficulty in finding another supplier for another supply, there is no manifest violation by the buyer of [her] duty to mitigate the loss according to Article 77 CISG."

Case 16:[135] A German buyer and an Italian seller concluded a contract of sale of Tetracycline, an ingredient used for production of pharmaceuticals. After having received the goods, the buyer delivered them to her customer. Upon notification of defectiveness of the goods made by her customer, the buyer agreed with the seller that the goods are to be remedied in Italy. The goods were supposed to be delivered by a German carrier selected by the seller; however, they were not collected in time. Due to the fact that the customer could not resume production without the goods, the buyer had the goods remedied in Germany and deducted the costs of treatment from the purchase price. The seller objected to the deduction stating that the goods could have been remedied at a much lower price in Italy and that the buyer should have notified the seller of the urgent need for the goods by her customer and thus mitigated the loss. Regarding the issue of mitigation, the court found that the buyer did not breach the duty to mitigate because "it was not clear whether the buyer knew the precise starting date of production by [her] customer and, furthermore, the seller was expected to know that any further delay would be unreasonable."

b) Other Measures Undertaken by the Seller

Stoll and Gruber suggest that if the buyer offers to take over only a part of the goods at a price, inferior to the one that has been contractually agreed, the seller must accept the offer if the price is above that which could be obtained by a cover transaction. If she, nevertheless, makes the substitute transaction at a lower price, she can only claim the difference between the price originally agreed and the price offered by the buyer.[136]

Courts and arbitral tribunals have found further mitigation measures to be expected from the party relying on the breach in their decisions. In a case before the ICC International Court of Arbitration, the tribunal found that the seller had acted reasonably by storing, maintaining and caring for the non-delivered machinery.[137] However, the seller was found to have failed to mitigate damages properly by failing to avoid the contract and demanding payment of the bank guarantee after buyer's breach of contract.

Case 17:[138] An Italian buyer and a German seller concluded a contract of sale of eleven cars. In accordance to the contractual provisions the buyer furnished a bank guarantee for the price in favor of the seller. The time of delivery was never expressly agreed. After a couple of months the buyer informed the seller that due to the strong fluctuations between the Italian and the German currency, it would be unable to accept delivery of the cars and urged the seller to try to defer delivery from her supplier. The seller therefore cancelled the orders from the supplier and drew on the bank guarantee. Thereupon, the buyer claimed repayment of the guarantee sum and damages. The court found that the buyer had breached the contract by not taking delivery of the cars and the seller was therefore entitled to claim damages. "But, as the [seller] never avoided the contract, [she] had disregarded [her] duty to mitigate [her] loss and could not claim damages. Therefore, the [seller] was not entitled to the [guarantee] sum."

§ 4.2.3 Anticipation of Especially High Losses

The promisee is generally obliged to notify the promisor of the risk of especially high losses which would occur as a result of non-performance.[139]

Nevertheless, the promisee is entitled to assume that the promisor will abide by the contract and is not expected to undertake measures to mitigate the loss if there is no actual fear that a breach may occur. Requiring the aggrieved party to acquire insurance to cover a stoppage in her production in case of non-performance would therefore normally not be considered a reasonable measure.[140]

§ 4.3 Time of Mitigation

§ 4.3.1 Measures Undertaken after the Breach of Contract

"Defer no time, delays have dangerous ends."
(William Shakespeare, Henry VI, Part 1, Act III.)

The CISG does not expressly state when the aggrieved party is to undertake measures to mitigate the damages, however, it can be inferred in connection with Article 7(1) that the measures are to be undertaken in accordance with the principle of observance of good faith in international trade. Also, Article 75 expects the party relying on the breach to undertake mitigation measures in reasonable time. Although the provision of Article 75 deals with recovery of damages and does not require the aggrieved party to undertake any measures, it can be inferred that the promisee is expected to undertake the measures within reasonable time in the circumstances also under the provision of Article 77.[141] This is evident from the obligation to have to undertake reasonable measures -- the aggrieved party must mitigate the loss as soon as this has become reasonable in the circumstances. Schechtriem suggests that "there are good reasons to assume that, in regard to the CISG, the duty to mitigate damages can require that a cover transaction be undertaken at the earliest possible point in time ..."[142] According to Honnold, this restriction "prevents an avoiding seller from shifting to the buyer the loss resulting from a subsequent drop in the market price; similarly, an avoiding buyer may not shift a subsequent rise in price to the seller."[143]

Case 18:[144] In a decision involving an Italian shoe manufacturer and a German buyer, the Düsseldorf Appellate Court ruled that the seller had fulfilled her duty to mitigate by selling the goods (shoes intended for resale) two months after avoidance. After the buyer had failed to perform, the seller avoided the contract on 7 August. The promisee resold the shoes on 6 and 15 October to merchants who buy remaining stock at the end of the season. The court found that the promisee had concluded a substitute transaction within reasonable time and accepted her argument that in August most retailers had already filled their stock for the winter season and did not need new merchandise.

Case 19:[145] A similar point of view was taken by the Hamburg Appellate Court in a case involving an English buyer and a German seller regarding a sale of iron-molybdenum. The seller failed to obtain the goods from her supplier and therefore did not deliver. The buyer purchased the goods elsewhere within two weeks after the failure of performance and claimed the difference in price. The court found that buyer had acted within reasonable time after the failure of performance. It stated that such a period of time has to be granted for "orientation and consideration and for inviting offers" and was in this case granted even though the market price of iron-molybdenum had risen substantially in the meantime.

Case 20:[146] In the Methyl tertiary-butyl ether case, the court found that the aggrieved seller had undertaken mitigation measures within reasonable time. The seller resold the goods in two days after having been notified of the buyer's refusal to accept the goods. The seller was therefore not held responsible for the fact that the market price of the goods fell in the period between the time of avoidance of the contract and the time of performing a cover transaction and was therefore awarded full compensation for the damage resulting from the breach.

§ 4.3.2 Measures Undertaken Prior to the Date of Performance

On the other hand, the situation where repudiation occurs prior to the scheduled day of performance is more complex.[147] Some authors and decisions suggest that the promisee is in most cases not required to mitigate before the contract is avoided (while the parties can still claim performance).[148]

Case 21:[149] One such decision was made by the Braunschweig Appellate Court in a dispute between a German seller and a Belgian buyer. The shipment of the goods was to be made upon payment of the invoice. The seller initially delivered goods to Brussels (instead of the agreed place of delivery, Antwerp). After the buyer had refused to take the goods at Brussels, the seller offered to deliver in Antwerp as initially agreed and demanded payment of the price, still within the time frame of the contract. The buyer refused to pay on grounds that the seller had not performed in accordance with the contract regarding the place of performance. Because the contract provided that the buyer is to pay the price before the seller makes delivery, the contract was in fact still binding for both parties. The court found that the aggrieved party is in principle not required to mitigate damages as long as the contract still exists.

However, the Secretariat Commentary on the draft counterpart of Article 77 suggests that the duty to mitigate damages applies to an "anticipatory breach of contract under Article 72 as well as to a breach in respect of an obligation […] which is currently due."[150] The other party is therefore not to await the date of performance without undertaking any mitigation measures when it is clear that the other party will commit a fundamental breach of contract.[151] Schlechtriem refers to the discussions in Vienna when stating that "at least as a measure to mitigate damages, an earlier date than that of actual avoidance could be taken as the decisive reference date if a cover transaction would then have been possible and "reasonable" under Art 77 CISG due to the lower costs thereby incurred."[152]

Nevertheless, due consideration is to be given to the circumstances of the case. Lookofsky suggests that the general principle presumably also applies "as regards a prospective breach: once the buyer has reason to know that the seller's performance will not be forthcoming, [she] is expected to take such affirmative steps as are appropriate in the circumstances to avoid loss."[153]

A distinction regarding buyer's intention with the goods is proposed by Honnold.[154] The question whether the aggrieved party must accept repudiation by the party in breach and declare the contract avoided, depends on whether the goods had been purchased for resale or as materials needed in the buyer's production process.

a) Goods Purchased for Resale

Example 1:[155] On 1 June the buyer and the seller concluded a contract for the sale of goods intended for resale at a price of $50,000. The scheduled date of delivery was 1 August. On 1 July, the buyer repudiated the contract due to the drop of the market prices (at the time of repudiation, the market price of the goods had dropped to $40,000) and requested the seller to resell the goods. The seller insisted on performance in accordance with the contract. The buyer thereupon repeated her repudiation. By the delivery date (1 August), the prices dropped further. The seller declared the contract avoided and made a substitute sale for $30,000. The buyer contended that the seller should have concluded a substitute sale on 1 July, when she could have done so at a price of $40,000, thereby reducing the damages from $20,000 to $10,000.

According to Article 72(1), the party relying on the breach may declare the contract avoided if it is clear prior to the date of performance that the other party will commit a fundamental breach of contract. Seller is therefore not required to declare the contract avoided by Article 72(1), that is merely her right. She still has a legitimate claim for performance (payment of price). Honnold states that "there is nothing unfair or wasteful in [seller's] refusing to accept [buyer's] repudiation. No one knows when a falling market has reached bottom."[156] Seller's insistence on performance is by no means in contrast to the principle of good faith in international trade. A prudent businessman in the same circumstances would not have been expected to act differently.

b) Materials Needed for Current Production

Example 2:[157] On 1 June the buyer and the seller made a contract of sale regarding goods for use in buyer's production process. Before the scheduled delivery date, the seller informed the buyer that she will be unable to deliver the goods in time due to production difficulties. Comparable goods were readily available in buyer's area at the time. However, despite the availability, she failed to make a cover purchase. As a result of seller's failure to deliver the goods, the buyer had to shut down her production line and subsequently claimed damages of $300,000. The seller claimed a reduction of damages to the extent the loss could have been avoided.

According to Lookofsky, if the seller is late in delivering the goods that are intended to serve as a key ingredient or a tool in the buyer's production process, and the buyer makes no reasonable effort to obtain the goods elsewhere, "any profits lost will not have been suffered solely in consequence of the seller's breach."[158] In the above case, the buyer could have easily avoided the complete loss by making a cover purchase. It would have been reasonable in the circumstances to buy the goods elsewhere and claim the incurred costs of the substitute transaction. In Honnold's opinion, the buyer could have chosen to avoid the contract under Article 72 or send to the seller a notice of suspension under Article 71(3), if he wished to press for later delivery. In cases where the loss seems to have been caused by the promisee's own pre-breach negligent act, Lookofsky suggests that "although CISG Article 75 seems designed mainly to post-breach mitigation, the Convention does not bar recognition of the pre-breach (prevention) aspect of avoidability. For example, where the harm caused by seller's delayed delivery of a simple standard part is aggravated by the fact that buyer keeps no such spares on hand, such a failure to take precautionary measures, if judged unreasonable, will prevent the recovery of compensation for avoidable loss."[159]

As the duty to mitigate only applies to reducing damages, the aggrieved party may still be able to claim performance as the Convention now stands (e.g., the aggrieved seller may generally, after having received the buyer's repudiation of the contract and refusal to accept the goods, still be able to claim the full price for the goods without having to mitigate damages).[160]

§ 5 Calculation of Damages in Cases where Mitigation was Required

As the costs of mitigation measures are to be included in the loss, resulting from the breach of contract, they are to be borne by the party in the breach.[161] The damages are to be reduced by the amount by which the loss "should have been mitigated if the injured party [has] taken reasonable measures to avert or to lessen it."[162] The Secretariat provided some examples of damages calculation in the Secretariat Commentary on Article 73 of the Draft:

"Example 73A: The contract provided that Seller was to deliver 100 machine tools by 1 December at a total price of $50,000. On 1 July he wrote Buyer and said that because of the rise in prices which would certainly continue for the rest of the year, he would not deliver the tools unless Buyer agreed to pay $60,000. Buyer replied that he would insist that Seller deliver the tools at the contract price of $50,000. On 1 July and for a reasonable time thereafter, the price at which Buyer could have contracted with a different seller for delivery on 1 December was $56,000. On 1 December Buyer made a cover purchase for $61,000 for delivery on 1 March. Because of the delay in receiving the tools, Buyer suffered additional losses of $3,000."[163]

The seller let the buyer know that he would not deliver the goods by the agreed date on 1 July. The seller could therefore have already avoided the contract and undertaken reasonable mitigation measures (making a cover purchase at the price of $56,000) on 1 July or a reasonable time thereafter.[164] By doing so, she could have avoided the additional losses amounting to $8,000 ($5,000 incurred because of the rise of the market price and $3,000 additional losses because of the delay in receiving the goods) which incurred exclusively due to the unsubstantiated delay in performing the cover purchase. Had the buyer mitigated damages properly (e.g., made the cover purchase in reasonable time), the damages would amount to $6,000 rather than to $14,000. Because the seller may under Article 77 claim a reduction in damages in the amount by which the loss should have been mitigated, the buyer will very likely only be able to recover $6,000 in damages, "rather than $14,000, the total amount of losses which he had suffered by awaiting 1 December to make the cover purchase."[165]

By failing to mitigate the damages properly, the buyer suffered:

Cover purchase made on 1 December at   $61,000
Contractually agreed price    -  $50,000
The price difference amounted to:    -  $11,000
Adding the additional loss due to the delay in delivery    +    $3,000
Amounting to total damages suffered   $14,000

The buyer could have, by undertaking reasonable mitigation measures in due time, avoided the following losses:

The difference in the price of the goods on 1 December when the cover purchase was actually performed and the price of goods on 1 July, when it was reasonable to perform the cover purchase ($61,000 - $56,000 = $5,000); and     $5,000
The amount of additional losses incurred due to the delay in delivery    +    $3,000
Amounting to the sum of avoidable losses:     $8,000

As the buyer should have mitigated damages by undertaking reasonable measures, the damages are to be reduced by the loss that could have been avoided:

Total damages suffered:   $14,000
Reduced by the loss that could have been avoided    -    $8,000
Amounts to the sum of recoverable damages:     $6,000

"Example 73B: Promptly after receiving seller's letter of 1 July, in Example 73A, pursuant to Article 62 [draft counterpart of CISG Article 71] buyer made demand on seller for adequate assurances that he would perform the contract as specified on 1 December. Seller failed to furnish the assurance within the reasonable period of time specified by buyer. Buyer promptly made a cover purchase at the currently prevailing price of $57,000 ..."[166]

In this case, the buyer promptly undertook mitigation measures by performing a cover purchase. Therefore no additional losses were suffered (cf. additional losses incurred due to the delay in receiving the tools in Example 73A). The total amount of damages incurred was therefore $7,000 compared to the damages that incurred in Example73A ($14,000)

Cover purchase made at   $57,000
Contractually agreed price    -  $50,000
The price difference amounted to:     $7,000

The price of the goods on the market on 1 July was $56,000. While the buyer was waiting for seller's assurance that he would perform delivery as stipulated in the contract, the price on the market rose by $1,000. However, the buyer is not likely to be limited in recovering the additional $1,000 because the delay in making the cover purchase was caused by the seller. Had the seller refused to provide assurances and confirmed that she would not deliver on 2 July the buyer might have well been expected to make the cover purchase promptly or in a reasonable time thereafter.[167]

§ 6 Costs of Mitigation

When a party undertakes measures to mitigate the loss she will likely suffer additional costs. This sum is to be "considered as a loss suffered as a consequence of the breach of contract ..."[168] and can be claimed on the basis of Article 74. The costs of mitigation measures, including those that failed to successfully mitigate the loss, are to be borne by the party in breach. However, this only applies to reasonable measures.[169] The costs are therefore refundable even if they have been undertaken in vain, as long as they can be considered reasonable in the circumstances.[170] In a case involving a Swiss seller and a German buyer regarding a sale of stainless steel wire, the German Supreme Court found that the buyer could not demand payment of the costs of double sanding the delivered defective wire as well as the costs of converting the sanding machine to process the defective wire, because they were disproportionate to the cost of the wire.[171] In another case, the court found that the buyer had failed to mitigate the loss by ordering a missing translation of VCR manuals elsewhere as she did not notify the seller, who would have had the VCR manuals in the required languages:

Case 21:[172] A Swiss buyer and a German seller concluded a contract for sale of 4,000 video recorders. Among other alleged defects, the buyer stipulated that by only delivering manuals in German, the seller had breached the contract as she should have also delivered the manuals in other official Swiss languages. The buyer therefore had the manuals translated. Although the court found that the seller was not obliged to deliver the manuals in other languages spoken in Switzerland as this should have been stipulated, it ruled on the matter of mitigation nonetheless, stating that the buyer "by ordering the production of the manuals elsewhere instead of requesting delivery from the [seller] -- violated her obligation to mitigate damages under Article 77 CISG. At least the [seller]'s parent company, a global player in the market, would have been able to provide a delivery of manuals in French and Italian without necessitating translation costs."

Zeller refers to a Swiss decision where the Commercial Court of St. Gallen pointed to the fact that "mitigation not only obliges the aggrieved party to take positive steps but these positive steps cannot be undertaken when they result in unnecessary costs."[173] When comparing the duty to mitigate in the CISG to the PECL counterpart provisions, Zeller suggests that they lead to the same result, "… however, Article 9:505(2) [of the PECL] turned the obligation around by allowing the aggrieved party only to recover costs which are reasonably incurred. The interpretation of the CISG as pointed out above suggests that the non-breaching party can incur expenses until the costs to mitigate become unreasonable. In sum, though, the practical effect is the same."[174]

§ 6.1 Employing a Debt Collection Company or an Enforcing Agent

A party enforcing the claim through a debt collection company or an enforcing agent has in some cases been found to have breached her duty to mitigate.[175] In a case before the Amtsgericht Berlin-Tiergarten, the seller (plaintiff) was denied her claim for compensation for costs of hiring a debt collection company. The court stated that this was not the most economical way to collect her debt as she could have filed an action at a Dutch court and then, under the rules of Private International Law, have the decision enforced in Germany without further expenses.[176] A similar decision was made in a ruling of the Amtsgericht Alsfeld:

Case 22:[177] A German buyer ordered flagstones at the price of 1,575.00 DM from an Italian seller. After the buyer had failed to pay the price of the goods in time, the seller authorized an Italian attorney to send the buyer a reminder. After failing to resolve the dispute amicably, the seller sued the buyer at the competent German court. One of the claims that the seller was asserting concerned the costs of the reminder. The court found that by failing to authorize an attorney from the jurisdiction of the buyer, the seller had failed to mitigate the loss and was therefore not entitled to claim the attorney's fee besides "the procedural fees of her counsel if she mandated a lawyer seated in Germany." As the seller's counsel actually also operated an office in Stuttgart, it was particularly evident that the party cannot claim the fees for an Italian counsel as the counsel could have easily prepared the reminder at her German office.

In a case before the District Court Düsseldorf,[178] the court found that the plaintiff had failed to undertake reasonable measures to mitigate the loss by entrusting an agent to recover the outstanding debt. Such action would only be reasonable if the agent had more effective means of recovery than the plaintiff, a circumstance which the plaintiff failed to prove. In another German case,[179] the plaintiff was also found to have acted in contradiction with the duty to mitigate the loss by employing a collection agency. The court ruled that she was unable to claim for compensation for these fees saying that it was not evident from the circumstances of the case that the party in breach would have paid her debt after being requested by a collection agency; therefore, a party would have had to entrust an attorney with the recovery of the outstanding debt. The expenses incurred from requests for payment by the attorney would have been included in the legal expenses of the trial.

§ 7 Conclusion

The number of Contracting States of the CISG is on the rise with the vast majority of international sale contracts in the world susceptible to being governed by its provisions.[180] In the eventual disputes arising from the breach of these contracts, it is very likely that the question of recovery of damages will arise and furthermore, that such a dispute can be governed by the CISG.

The promisee is obliged to mitigate damages in all cases regarding claims of damages, resulting from a breach of CISG governed contracts. Also, the duty to mitigate exists throughout the whole duration of contract, i.e., even before the breach of contract has occurred and must be considered ex officio.[181] Nevertheless, the duty to mitigate only applies to claims for damages, hence the right to claim other remedies in full normally remains unaffected due to the placement of Article 77 in the CISG. This is much discussed in legal theory as it gives rise to a conflict between the promisee's right to demand performance and her obligation to mitigate loss.[182] One of the purposes of this work was to examine this conflict further. It has been established that, although the duty to mitigate normally applies only to claims for damages, situations might occur, where a possibility of application to claims for performance would have been more reasonable. Perhaps a further development in case law will provide clearer solutions to this conflict.

Article 77 requires the party relying on the breach to undertake all mitigation measures that are reasonable in the circumstances. The primary purpose of this work was to canvass the reasonableness of the measures by focusing on the interpretation of reasonableness of the measures in case law and in scholarly opinions. A number of important factors were considered and it has been established that, as the circumstances differ from case-to-case, there can be no hard rule providing for situations, where certain mitigation measures are expected. The reasonableness of measures that were or should have been undertaken is rather to be assessed on a case-by-case basis. This assessment falls to the discretion of the tribunal and is to be made interpreting the general principles of international trade, especially the principle of good faith in international trade.[183]

Returning to the introductory 'dinner invitation' in Chapter 1, the reader will most likely find the host to be required to 'mitigate' the loss resulting from the non-attendance of one of the guests by inferring that he is not coming and to start eating in order not to let herself or the other hosts starve, thereby allowing the 'damages to increase'. Such action is likely to be found reasonable by most people. However, in international commercial trade, more complicated situations are going to arise. And, in order to promote the uniformity of CISG application as required by Article 7(1), a thorough understanding of the interpretation of the principle of reasonableness is required.


FOOTNOTES

1. POSNER, cited in BRANDT.

2. The Convention text is available on-line at the UNCITRAL website: <http://www.uncitral.org/pdf/english/texts/sales/cisg/CISG.pdf>.

3. The Convention was adopted on 11 April, 1980 at the conclusion of a Diplomatic conference. Article 99(1) provides that it is to enter into force "on the first day of the month following the expiration of twelve months after the date of deposit of the tenth instrument of ratification, acceptance, approval or accession ...". The Convention therefore came into force on 1 January, 1988.

4. LOOKOFSKY IN UNDERSTANDING, p.1.

5. The Japanese parliament has ratified the Convention on 1 July 2008 and it has entered into force in Japan on August 1 2009; See HUBER IN REMARKS.

6. See SCHWENZER, HACHEM; Regarding CISG application see LOOKOFSKY IN UNDERSTANDING, § 1.1 p.2-4.

7. E.g. require performance, delivery of substitute goods, repair of goods, avoid the contract etc.

8. Art 45(2) CISG: The buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies. Art 61(2): The seller is not deprived of any right he may have to claim damages by exercising his right to other remedies CISG.

9. Article 74 contains a general clause while Articles 75 and 76 deal with recovery of damages in case the aggrieved party has performed a cover transaction. In such cases any further damages remain recoverable under the general clause of Article 74. See SCHLECHTRIEM in DAMAGES, § I; on cover transactions as reasonable mitigation measures see infra § 4.2.1.

10. The conditions, required for avoidance of contract are stipulated by Articles 49 and 64.

11. See SCHLECHTRIEM IN DAMAGES, § I.

12. CHENGWEI, §14.5.

13. STOLL/GRUBER p.787; cf. § 254 German BGB §1304, Austrian ABGB, Art 44(1) Swiss OR in conjunction with Art 99.3 OR, Art 1227 Italian Codice Civile, Art. 6:96 (2) (a) Dutch NBW, Art 243(4) Slovenian OZ, Art. 13 (6) UNIDROIT Convention on International Leasing, Art. 404 (1) Russian Civil Code, Art. 1475 Civil Code Québec, Art. 119 Chinese CL, Art.1802 Ethiopian Civil Code; see also § 34.9 Standard Contract for the UK Offshore & Gas Industry, General Conditions of Contract (including Guidance Notes) for Marine Construction; on the situation in English law see JENKS, p.124.

14. E.g. Article 7.4.8 of the UNIDROIT Principles, PECL Article 9:505.

15. HONNOLD, p.417.

16. See OSMAN, p.186; See also CHENGWEI, §14.5.1.

17. BLESSING, p.68 et seq; cf. HERBER/CZERWENKA.

18. cf. Iran-United States Claims Tribunal, Watkins-Johnson Co. & Watkins-Johnson Ltd. v. The Islamic Republic of Iran & Bank Saderat Iran, 28 July 1989, available at: <http://www.unilex.info/case.cfm?pid=1&do=case&id=38&step=FullText>, (The Court stated that the "[seller's] right to sell undelivered equipment in mitigation of [her] damages is consistent with recognized international law of commercial contracts.")

19. Lookofsky suggests that the general duty of good faith includes a duty to take reasonable steps to protect the other party's interests, see LOOKOFSKY IN UNDERSTANDING, p.153; cf. STOLL/GRUBER p.787; see infra § 4; see also HONSELL/MAGNUS on the "Grundsatz von Treu und Glauben", p.974.

20. ZELLER, § II; cf. Amtsgericht München, Germany, 23 June 1995 (Tetracycline case), English abstract available at: <http://www.unilex.info/case.cfm?pid=1&do=case&id=147&step=Abstract> where the court found that "In the light of the calculation of the loss suffered, the [seller] should have taken such measures which are reasonable with regard to a wise holder of a claim for damages. Reasonableness will thereby be determined in accordance with the principle of good faith."

21. KNAPP, p.560.

22. cf. STOLL/GRUBER, p.787 "This provision is based on the principle that there should be no compensation 2for avoidable loss."

23. HONSELL/MAGNUS, p.974.

24. STOLL/GRUBER, p.787, See ENDERLEIN/MASKOW, p.309, ("If the loss could have been prevented, there would have been the chance to reducing the damages down to zero.")

25. cf. COMMENTARY-ART 73, §2 -- "In this case the duty owed is the obligation of the injured party to take actions to mitigate the harm he will suffer from the breach so as to mitigate the damages he will claim ..." Other such provisions include articles 85 to 88.

26. STOLL/GRUBER, p.788; WEBER, p.205; Oberlandesgericht Graz, Austria 24 January 2002 (Excavator case), English translation available at: <http://cisgw3.law.pace.edu/cases/020124a3.html>, CLOUT case no. 746 (The court noted that "Art. 77 does not constitute an actual duty against others but a mere obligation for oneself to mitigate damages if relying on a breach of contract.")

27. LOOKOFSKY IN CONVENTION, § 294, para 2.

28. cf. OPIE, § III, par. 2; STOLL/GRUBER, p.787, WEBER, p.205.

29. LOOKOFSKY-UNDERSTANDING CISG, p.135.

30. STOLL/GRUBER, p.793.

31. WEBER, p.206; see STOLL/GRUBER, p.793 "Article 77 not only grants the party liable for damages a right to withhold payment, but establishes a defence that may extinguish the claim and must be considered ex officio." see also HONSELL/MAGNUS, p.977.

32. Bundesgerichtshof, Germany, 24 March 1999 (Vine vax case), English translation available at: <http://cisgw3.law.pace.edu/cases/990324g1.html>, CLOUT case no. 271.

33. See infra § 4.1.

34. Convention relating to a Uniform Law on the International Sale of Goods (ULIS) done at The Hague on 1 July 1964. The ULIS Article 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.

35. KNAPP, p.559 § 1.1; STOLL IN SCHLECHTRIEM, p.659; cf. PECL Article 9:505 which is silent on the aspect of recovering damages for loss of profit.

36. STOLL IN SCHLECHTRIEM, p.659;  See CHENGWEI, §14.5.1.

37. Article 61(2) ULIS reads: The seller shall not be entitled to require payment of the price by the buyer if it is in conformity with usage and reasonably possible for the seller to resell the goods. In that case the contract shall be ipso facto avoided as from the time when such resale should be effected.

38. On (non)application of the duty to mitigate to promisee's other measures see infra § 3.2.

39. Text of [1978] Draft Convention on Contracts for the International Sale of Goods approved by the United Nations Commission on International Trade, available at: <http://www.cisg.law.pace.edu/cisg/1978draft.html>; The Chronological Record of Proceedings regarding CISG Article 77 is available at <http://www.cisg.law.pace.edu/cisg/chronology/chrono77.html>.

40. The Secretariat Commentary is on the 1978 Draft of the CISG and is therefore irrelevant in cases, where the text had been amended considerably. In the case of Article 77 (the CISG counterpart of Article 73 of the Draft), the modifications were minute. The Secretariat Commentary should therefore be relevant to the interpretation of CISG Article 77. More information on the match-up of CISG Article 77 with the 1978 Draft can be found in LEGISLATIVE HISTORY, ART 77 and COMMENTARY-ART 73, par. 1 and 2.

41. 30th MEETING, no.55; "That restrictive conception of the obligation to mitigate the loss might have very questionable results. For example, a buyer might realize, shortly after placing an order, that he would be unable to use the goods; he therefore proposed to the seller that he should pay him damages and asked him not to go ahead with the order; but the seller ignored his request and used materials and labour in producing the goods. If the seller then resold the goods and subsequently claimed damages from the buyer, the principle in article 73 [became CISG article 77 ] according to which the seller was required in such cases to take measures to mitigate his loss would naturally apply. On the other hand, if the seller claimed the price of the goods from the buyer, under a strict interpretation of the existing article 73 [became CISG article 77 ] that principle would not operate and the seller would be able to claim the full price. His delegation's amendment was therefore intended to prevent such a narrow and mistaken interpretation of the principle of mitigation of loss."

42. The United States proposal was rejected by 24 votes to 8; see 30th MEETING; See also SCHLECHTRIEM IN EINHEITLICHES UN-KAUFRECHT, p.92; KNAPP, p.566, STOLL/GRUBER, p.788.

43. On the (non)application of the principle of mitigation to the right to require performance and the effect of right to require performance see infra § 3.2.

44. cf. STOLL/GRUBER, p.788.

45. See STOLL/GRUBER, p.788, WEBER, p.205, LOOKOFSKY in UNDERSTANDING CISG, p.136, STOLL IN SCHLECHTRIEM, p.659; Hence, the duty to mitigate also applies in cases of anticipatory breach under Article 71, see infra § 4.3.

46. cf. KNAPP, p.566.

47. WEBER, p.205.

48. see infra § 4.3.

49. See supra § 2.

50. Nor does the duty to mitigate apply to claims for specific performance by the buyer -- see COMMENTARY-ART 42 "... this article does not allow the seller to refuse to perform on the grounds that the non-conformity was not substantial or that performance of the contract would cost the seller more than it would benefit the buyer. The choice is that of the buyer." cf. STOLL/GRUBER, p.788, see also HONSELL/MAGNUS p.974, KNAPP, p.563; ENDERLEIN/MASKOW, p.308.

51. The American delegation submitted a proposal to apply the mitigation principle also to the aggrieved party's other remedies. This proposal was however rejected. See supra § 2; Legislative history; See COMMENTARY-ART 73, § 3; see also KNAPP, p.566; STOLL/GRUBER, p.788; HONNOLD, p.460.

52. OPIE, § I, par. 3 "Article 77 […] applies only when a party is claiming damages for breach of contract and will not apply in relation to any other remedy sought (such as specific performance)"; STOLL/GRUBER p.788.

53. HONNOLD, p.460.

54. Including the right to claim performance.

55. See supra § 2., 30th MEETING; HONNOLD, p.463; SCHLECHTRIEM IN UNIFORM SALES LAW, p.99; SCHLECHTRIEM in EINHEITLICHES UN-KAUFRECHT, p.93; KNAPP, p.566; STOLL/GRUBER, p.788.

56. HELLNER p.98; Oberlandesgericht Celle, Germany, 2 September 1998 (Vacuum cleaners case), available at: <http://cisgw3.law.pace.edu/cases/980902g1.html>, CLOUT case no. 318 (The court maintained that "The legal consequence of Art. 77 CISG is solely a reduction in the amount by which the loss should have been mitigated."

57. STOLL/GRUBER, p.789.

58. STOLL/GRUBER, p.789.

59. Oberlandesgericht München, Germany, 8 February 1995 (Automobiles case), available at: <http://cisgw3.law.pace.edu/cases/950208g1.html>, CLOUT case no. 133; see infra § 4.2.2.b).

60. See supra § 2.

61. ZIEGEL/SAMSON, § 9.05, § 2, par.10.

62. STOLL/GRUBER, p.789.

63. HONSELL/MAGNUS, p.974, 975.

64. STOLL/GRUBER, p.789.

65. KNAPP, p.565.

66. HONNOLD, p.460.

67. HONNOLD, p.460; See Article 28 CISG.

68. On reasonableness of mitigation measures see infra § 4.

69. In Honnold's opinion the seller's conduct was "foolhardy even by standards of short-term selfishness in view of litigation delays and risks, which were enhanced by increasing the amount at stake by wasteful conduct." HONNOLD, p.460.

70. On calculation of recoverable damages see infra § 5.

71. Honnold proposes that "giving efect to the mitigation principle in unusual situations [like the above example] does not make a serious inroad in the general rule requiring performace of contracts; on the other hand, failing to give effect to Article 77 in such cases nullifies the mitigation rule when it is specially appropriate. In short, the mitigation rule is lex specialis in relation to the general rule requiring ("specific") performance." HONNOLD, p.460.

72. STOLL/GRUBER, p.789.

73. See Article 7 (1).

74. ENDERLEIN/MASKOW, p.309; See HELLNER, p.99.

75. On the principle of 'faute de la victime' see supra § 1.2.

76. STOLL/GRUBER, p.790.

77. STOLL/GRUBER, p.790; WEBER, p.205.

78. According to LOOKOFSKY IN UNDERSTANDING, p.38, the adjective reasonable (or unreasonable) appears 47 times throughout the text of the CISG.

79. The notion of reasonableness is however defined in the PECL -- see KRITZER, par. 1; cf. PECL Article 1:302 ("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.")

80. ZELLER, § II. Comparing the mitigation principle in PECL and CISG.

81. OPIE, § III, par. 1; cf. HONSELL/MAGNUS, p.975 who suggest that the reasonableness is to be assessed according to the "objective criterion" of a reasonable person in similar circumstances - "Hierfür ist der objektive Masstab einer verständigen Person in gleicher Lage [Article 8(2) CISG] zugrundezulegen.

82. Oberster Gerichtshof, Austria, 6 February 1996 (Propane case), English translation available at: <http://cisgw3.law.pace.edu/cases/960206a3.html>, CLOUT case no. 176 (The court stated that a possible measure to reduce damages is reasonable, "if it could have been expected as bona fides [good faith] conduct from a reasonable person in the position of the claimant under the same circumstances.")

83. STOLL/GRUBER, p.790, MAYER, p.551.

84. Oberlandesgericht Graz, Austria 24 January 2002 (Excavator case), English translation available at: <http://cisgw3.law.pace.edu/cases/020124a3.html> (The decision found, citing Karollus, UN-Kaufrecht, at p.225, that "the obligation stated in Art. 77 CISG is to be interpreted taking into account the competing interests of the parties, as well as commercial customs and the principle of good faith"); cf. Oberstergerichsthof, Austria, 14 January 2002 (Cooling system case), available at: <http://cisgw3.law.pace.edu/cases/020114a3.html>, CLOUT case no. 541 (The court noted "that loss caused by a breach of contract is not recoverable if it could have been reduced by taking reasonable measures. A potential measure to mitigate damages is reasonable, if in good faith it could be expected under the circumstances. This is to be determined according to the actions of a reasonable person in the same circumstances"); Oberster Gerichtshof, Austria, 6 February 1996 (Propane case), available at: <http://cisgw3.law.pace.edu/cases/960206a3.html>, CLOUT case no. 176 "A possible measure to reduce damages is reasonable, if it could have been expected as bona fides [good faith] conduct from a reasonable person in the position of the claimant under the same circumstances."

85. STOLL/GRUBER, p.790; cf. HONSELL/MAGNUS, p.975; See Article 9.

86. KNAPP, p.560; STOLL/GRUBER, p.790, § 7, ZELLER, § II; WEBER, p.205.

87. KNAPP, p.560.

88. Oberster Gerichsthof, Austria, 14 January 2002 (Cooling system case), English translation available at <http://cisgw3.law.pace.edu/cases/020114a3.html>, CLOUT case no. 541 (The court denied the aggrieved buyer the right to claim the damages that arose from mitigation, claiming that "The buyer can also remedy the defect itself [...] if a cure is not expected by the seller [...] However, in doing so, the buyer may not undertake any unreasonable expenditures (Art. 77 CISG): if the costs to effect a cure stand in no reasonable proportion to the benefit of the cure for the buyer, then they are not recoverable.")

89. OPIE, § 3.

90. SAIDOV, § 4.(b).

91. LOOKOFSKY IN UNDERSTANDING, p.136.

92. KNAPP, p.560; On calculation of recoverable damages see infra § 5.

93. STOLL/GRUBER, p.793; WEBER, p.206.

94. Oberster Gerichtshof, Austria, 6 February 1996 (Propane case), available at: <http://cisgw3.law.pace.edu/cases/960206a3.html>. CLOUT case no. 176.

95. Oberlandesgericht Hamm, 22 September 1992, (Frozen bacon case), English translation available at: <http://cisgw3.law.pace.edu/cases/920922g1.html>, CLOUT case no. 227 ("On that issue, [Buyer] also stated that [Seller] indeed conducted a beneficial cover transaction, that is, [she] sold the bacon at a price higher than the contract price and the market price, consequently, [she] suffered no damages at all, or, in any event, less than the amount claimed. However, Plaintiff [Buyer], who bears the burden of proof, was unable to prove this statement.")

96. cf. Article 9.506 PECL.

97. STOLL/GRUBER, p.790.

98. HUBER, p.291.

99. On the other hand, Schlecthriem suggests that if the aggrieved party merely undertakes a cover transaction before she has avoided the contract, "this should not deprive the obligor of his right to tender performance". See SCHLECHTRIEM IN DAMAGES, § I.c.

100. STOLL/GRUBER, p.792.

101. HONSELL/MAGNUS, p.976.

102. Federal District Court New York, United States, 9 September 1994 (Delchi Carrier v. Rotorex), available at: <http://cisgw3.law.pace.edu/cases/940909u1.html>, CLOUT case no. 85.

103. Oberlandesgericht Düsseldorf, Germany, 14 January 1994, available at: <http://www.cisg-online.ch/cisg/urteile/119.htm>, CLOUT case no. 130.

104. Vienna Arbitration proceeding SCH-4366, 15 June 1994 (Rolled metal sheets case), available at: <http://cisgw3.law.pace.edu/cases/940615a3.html> , CLOUT case no. 93.

105. Oberlandesgericht Hamm, 22 September 1992 (Frozen bacon case), English translation available at: <http://cisgw3.law.pace.edu/cases/920922g1.html>, CLOUT case no. 227.

106. On the burden of proof of the reasonableness of mitigation measures see supra § 4.1.

107. Iran-United States Claims Tribunal, Watkins-Johnson Co. & Watkins-Johnson Ltd. v. The Islamic Republic of Iran & Bank Saderat Iran, 28 July 1989, available at: <http://www.unilex.info/case.cfm?pid=1&do=case&id=38&step=FullText>.

108. STOLL/GRUBER, p.791.

109. Tribunal Supremo, Spain, 28 January 2000 (Internationale Jute Maatschappij v. Marin Palomares), available at: <http://cisgw3.law.pace.edu/cases/000128s4.html>, CLOUT case no. 395.

110. China post-1989 CIETAC Arbitration proceedings (Cloth wind coats case), available at: <http://cisgw3.law.pace.edu/cases/900000c1.html>.

111. More on the ICC Incoterms at: <http://www.iccwbo.org/incoterms/id3045/index.html>.

112. However, as the seller failed to provide any specific amount or present evidence of the costs for storing the goods, the Tribunal did not consider [her] claim regarding damages incurred because of storing of the goods.

113. According to Hellner, it is in such cases easier for the seller to recover damages for consequential loss than for a buyer to recover consequential loss in a corresponding case; HELLNER, p.100.

114. Oberster Gerichtshof, Austria, 28 April 2000 (Jewellery case), available at: <http://cisgw3.law.pace.edu/cases/000428a3.html>, CLOUT case no. 427.

115. as well as any further damages recoverable under article 74.

116. STOLL/GRUBER, p.792.

117. Oberlandesgericht Hamm, 22 September 1992 (Frozen bacon case), English translation available at: <http://cisgw3.law.pace.edu/cases/920922g1.html>, CLOUT case no. 227, at §II.1.

118. STOLL/GRUBER, p.792; CISG-online case 57.

119. STOLL/GRUBER, p.790, WEBER, p.205.

120. STOLL/GRUBER, p.791.

121. Amtsgericht München, Germany, 23 June 1995 (Tetracycline case), English abstract available at: <http://www.unilex.info/case.cfm?pid=1&do=case&id=147&step=Abstract>;; see infra § 4.2.2.b).

122. STOLL/GRUBER, p.792, cf. ENDERLEIN/MASKOW, p.308 "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 (Articles 49 and 64), avoidance of the contract may be one of the reasonable measures which help to mitigate the losses of the injured party.")

123. See supra § 3.2.

124. See STOLL/GRUBER, p.790; KNAPP, p.560; HONSELL/MAGNUS, p.976.

125. KNAPP, p.560.

126. Oberlandesgericht Köln, Germany, 8 January 1997 (Tannery machines case), English translation available at: <http://cisgw3.law.pace.edu/cases/970108g1.html>.

127. Federal Appellate Court [4th Circuit], United States, 21 June 2002 (Schmitz-Werke v. Rockland), available at: <http://cisgw3.law.pace.edu/cases/020621u1.html>, CLOUT case no. 580.

128. ICC award no. 8786 of January 1997 (Clothing case), available at: <http://cisgw3.law.pace.edu/cases/978786i1.html>.

129. Oberlandesgericht Köln, Germany, 21 August 1997 (Aluminium hydroxide case), English translation available at: <http://cisgw3.law.pace.edu/cases/970821g1.html>, CLOUT case no. 284.

130. Bundesgerichtshof, Germany, 24 March 1999 (Vine wax case), English translation available at: <http://cisgw3.law.pace.edu/cases/990324g1.html>, CLOUT case no. 271.

131. Oberlandesgericht Celle, Germany, 2 September 1998 (Vacuum cleaners case), English translation available at: <http://cisgw3.law.pace.edu/cases/980902g1.html>, CLOUT case no. 318 (The court however found the buyers submissions incomplete and was therefore unable to determine the extent of the damages. The issue of mitigation was therefore of no importance for the outcome of the case.)

132. Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, 6 June 2000 Arbitration proceeding 406/1998, English translation available at: <http://cisgw3.law.pace.edu/cases/000606r1.html>, CLOUT case no. 303 ("The Tribunal also paid attention to the fact that the [buyer] had not taken any measures to mitigate the amount of [her] loss, as is required by Article 77 CISG. The [buyer] did not cancel the contract with the third party, did not conclude any substitute transaction and did not resort to Article 76 CISG when calculating the damages.")

133. ICC Arbitration case no. 7331 of 1994 (Cowhides case), Abstract available at: <http://cisgw3.law.pace.edu/cases/947331i1.html>, CLOUT case no. 303 (The court dealt with the issue of loss mitigation despite the fact that it found the buyer not to have given timely notice of the non-conformity of the goods.)

134. Schiedsgericht der Handelskammer Hamburg, Germany, 21 March 1996 (Chinese goods case), available at: <http://cisgw3.law.pace.edu/cases/960321g1.html>, CLOUT case no. 166.

135. Amtsgericht München, Germany, 23 June 1995 (Tetracycline case), English abstract available at: <http://www.unilex.info/case.cfm?pid=1&do=case&id=147&step=Abstract>.

136. STOLL/GRUBER, p.791.

137. ICC Arbitration case no. 7585 of 1992 (Foamed board machinery case), Case abstract and editorial remarks available at: <http://cisgw3.law.pace.edu/cases/927585i1.html>, CLOUT case no. 301 (The Italian seller refused to deliver the machinery after the Finnish buyer had failed to perform her obligations in due time).

138. Oberlandesgericht München, Germany, 8 February 1995 (Automobiles case), available at: <http://cisgw3.law.pace.edu/cases/950208g1.html>, CLOUT case no. 133.

139. STOLL/GRUBER, p.791; HONSELL/MAGNUS, p.976.

140. STOLL/GRUBER, p.791, HONSELL/MAGNUS, p.976.

141. See DI MATTEO, p.157; See also HONNOLD, p.457.

142. SCHLECHTRIEM IN DAMAGES, § II. 2.

143. "Thus, claims based on Articles 75 or 76 seldom raise mitigation problems under Article 77." HONNOLD, p.457.

144. Oberlandesgericht Düsseldorf, Germany, 14 January 1994, available at: <http://www.cisg-online.ch/cisg/urteile/119.htm>, CLOUT case no. 130.

145. Oberlandesgericht Hamburg, Germany, 28 February 1997 (Iron molybdenum case), available at: <http://www.uncitral.org/clout/showDocument.do?documentUid=1500>, CLOUT case no. 277 (The court actually considered the reasonableness of time of mitigation in the sense of Art. 75, however the scope of the interpretation should also be extended to Article 77).

146. Kantonsgericht Zug, Switzerland, 12 December 2002 (Methyl tertiary-butyl ether case), English translation available at: <http://cisgw3.law.pace.edu/cases/021212s1.html>, CLOUT case. no. 629; cf. Sø og Handelsretten, Denmark, 31 January 2002 (Dr. S. Sergueev Handelsagentur v. DAT-SCHAUB A/S), English translation available at: <http://cisgw3.law.pace.edu/cases/020131d1.html> (The court found that the buyer had failed to undertake mitigation measures in time, stating that she "should have sold the goods at an earlier date and at a higher price. This would have reduced storage costs. A sale in April/May would have been possible, considerably mitigating the loss").

147. Schlechtriem finds that "the question of failure to undertake a possible cover transaction at a more favourable price constitutes a breach of the duty to mitigate will predominantly arise in cases […] in which a cover contract could have been concluded before avoidance." SCHLECHTRIEM IN DAMAGES § II.2.

148. DI MATEO, p.157; Oberlandesgericht Düsseldorf, Germany, 14 January 1994 (Shoes case), available at: <http://www.cisg-online.ch/cisg/urteile/119.htm>, CLOUT case no. 130 (The court stated that the seller is not obliged by Article 75 to enter into a substitute transaction before having declared the contract avoided. Rather, she is entitled to insist on the performance of the contract or declare the contract avoided and enter into a substitute transaction.)

149. Oberlandesgericht Braunschweig, Germany, 28 October 1999 (Frozen meat case), available at: <http://www.cisg-online.ch/cisg/urteile/510.htm>, CLOUT case no. 361.

150. COMMENTARY-ART 73, § 4.

151. COMMENTARY-ART 73, § 4 -- the Commentary suggests that "The use of the procedure set forth in Article 62 [now Article 71 CISG], if applicable, would be a reasonable measure even though it may delay the avoidance of the contract and the cover purchase, resale of the goods or otherwise, beyond the date on which such action would otherwise have been required."

152. SCHLECHTRIEM IN DAMAGES, § II.4.

153. LOOKOFSKY IN UNDERSTANDING, p.136.

154. HONNOLD, p.516.

155. The complete example can be found in HONNOLD, p.516.

156. HONNOLD, p.459.

157. The complete example can be found in HONNOLD, p.517.

158. LOOKOFSKY IN UNDERSTANDING, p.136.

159. LOOKOFSKY IN CONVENTION, § 295.

160. See supra § 3.2.

161. See infra § 6.

162. KNAPP, p.562.

163. COMMENTARY-ART 73.

164. As the seller made it clear that she will not perform, the buyer could have performed a cover purchase before the agreed date of performance, thereby mitigating loss resulting from the breach. On reasonableness of the measures undertaken prior to the contractually agreed date of performance see supra § 4.3.2.

165. COMMENTARY-ART 73.

166. COMMENTARY-ART 73.

167. On reasonableness of the time of performance of mitigation measures, see supra § 4.3.

168. KNAPP, p.561.

169. HONSELL/MAGNUS, p.976; KNAPP, p.561 ("The expended sum of money is considered as a loss suffered as a consequence of the breach of contract."); STOLL/GRUBER, p.792, (According to the authors, it is irrelevant whether the "limitation of the reimbursement to reasonable expenses is derived from Article 77, or directly from Article 74..."; cf. Oberster Gerichtshof, Austria, 14 January 2002 (Cooling system case), available at: <http://cisgw3.law.pace.edu/cases/020114a3.html>, CLOUT case no. 541 (In the court's opinion "the buyer may not undertake any unreasonable expenditures (Art. 77 CISG): if the costs to effect a cure stand in no reasonable proportion to the benefit of the cure for the buyer, then they are not recoverable.")

170. KNAPP, p.561; HONSELL/MAGNUS, p.976.

171. Bundesgerichtshof Germany, 25 June 1997 (Stainless steel wire case), English translation available at: <http://cisgw3.law.pace.edu/cases/970625g2.html>, CLOUT case no. 235.

172. Landgericht Darmstadt, Germany, 9 May 2000 (Video recorders case), English translation available at: <http://cisgw3.law.pace.edu/cases/000509g1.html>, CLOUT case no. 343.

173. ZELLER, § II, cf. Handelsgericht St. Gallen, Switzerland, 3 December 2002 (Sizing machine case), English translation available at: <http://cisgw3.law.pace.edu/cases/021203s1.html> (The court found, referring to HONSELL/MAGNUS that "[Seller]'s counterclaim may be reduced to the extent [she] took measures to mitigate the losses or ought to have taken such measures. Such measures entail namely the re-sale or respectively the re-utilization of the sold machine, if there was not any market place for such a kind of production machine, because it was unique. Furthermore, these measures also entail the avoidance of any unnecessary expenditures and costs."

174. ZELLER, § II, par. 5.

175. HONSELL/MAGNUS, p.976.

176. Amtsgericht Berlin-Tiergarten, Germany, 13 March 1997, English translation available at: <http://cisgw3.law.pace.edu/cases/970313g1.html>, CLOUT case no. 296.

177. Amtsgericht Alsfeld, Germany, 12 May 1995 (Flagstone tiles case), English translation available at: <http://cisgw3.law.pace.edu/cases/950512g1.html>, CLOUT case no. 410.

178. Landgericht Düsseldorf, Germany, 25 August 1994 (Fashion goods case), English translation available at: <http://cisgw3.law.pace.edu/cases/940825g1.html>.

179. Landgericht Berlin, Germany, 6 October 1992 (Wine case), available at: <http://www.cisg-online.ch/cisg/urteile/173.htm>; English translation available at: <http://cisgw3.law.pace.edu/cases/921006g1.html>.

180. See supra § 1.

181. See supra § 1.5.

182. See supra § 3.2.

183. See supra § 4.


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