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Source: Doc. B(1) Reproduced from UNCITRAL Yearbook VIII (1977), A/32/17, pages 25-64

EXCERPT FROM ANNEX I

Report of Committee of the Whole I relating to the
draft Convention on the International Sale of Goods

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CISG
number
Arts. 74, 75, 76

Relationship between Articles 55, 56 and 57

470. Prior to examining the provisions on damages, the Committee considered the relationship between articles 55, 56 and 57.

471. It was generally agreed that articles 56 and 57 were illustrations of the operation of article 55 in particular circumstances. Article 56 dealt with the case where the buyer had, bought goods in replacement or the seller had resold the goods. In these situations the measure of damages would be the difference between the contract price and the price in the substitute; transaction plus any additional damages, including loss of profit, as might be allowed under article 55. However, if there had not been a substitute transaction and if there was a current price for the goods, the measure of damages would be the difference between the contract price and the current price on the date that the contract was avoided plus any addition damages, including loss of profit, as might be allowed under article 55. In other cases, damages would be calculated according to the general formula in article 55. [page 58]

472. Furthermore, the Committee was agreed that a party who had in fact arranged a substitute transaction of the nature described in article 56 should not be allowed to claim damages under article 57 where that article would provide for a higher measure of damages.

CISG
number
Art. 74

Article 55

473. The text of article 55, as adopted by the Working Group on the International Sale of Goods, is as follows:

"Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages cannot exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters which he then knew or ought to have known, as a possible consequence of the breach of contract."

Limit on damages

474. The Committee considered a proposal that the second sentence of article 55 be replaced by the following:

"Such damages shall not include compensation for loss of a nature which the party in breach could not reasonably have foreseen at the time of the conclusion of the contract or of an extent which would be excessive in relation to the price, the ability of the party in breach to foresee or prevent the loss as well as other circumstances of the case."

475. In support of this proposal, it was stated that the present text of article 55 contained a limitation on the amount of damages which was hypothetical and gave little effective guidance in practice. While it would be difficult for a party to foresee the extent of the loss which the other party might suffer as a consequence of the breach, as was now required under article 55, it should not be difficult to foresee the nature of any such loss. However, the damages should also be limited to an amount which would not be excessive in relation to the price, the ability of the party in breach to prevent the loss and "other circumstances of the case."

476. There was little support for this proposal as it was considered to introduce many difficulties, in particular, the determination of whether damages were excessive in relation to the price and the determination of the "other circumstances of the case" which might be relevant. It was further pointed out that, since article 50 provided an exemption from damages if certain conditions were fulfilled, additional criteria in terms of ability to prevent the loss were not appropriate in article 55.

477. The Committee did not retain this proposal.

478. The Committee also did not retain a suggestion that the second sentence of article 55 be deleted so that the question of any limitation on the amount of damages would be left to national law.

Decision

479. The Committee considers that no change of substance is called for in respect of this article. It therefore recommends that the Commission should adopt the following text, now renumbered as article 56:

"Article 56

"Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters which he then knew or ought to have known, as a possible consequence of the breach of contract." [page 59]

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Proposed article on liquidated damages

510. The Committee considered a proposal that the Convention include a provision on liquidated damage clauses in contracts of sale. The following text was proposed as a basis for discussion:

"(1) The parties may agree in the contract or otherwise that a party who breaches the contract in a particular manner will pay liquidated damages to the other party.
"(2) Unless otherwise agreed upon by the parties, the payment of liquidated damages may be asked together with the request for the performance of the contract.
"(3) The judge or arbitrator may, on the request of the party required to pay, reduce the amount of liquidated damages if the other party contributed to the loss or did not co-operate in the performance of the contract where such co-operation was [needed] under the circumstances of the case.
"(4) The other party may claim, instead of the liquidated damages agreed upon in the contract, damages according to article 55 if the loss sustained by him is substantially higher than the damages agreed upon in the contract."

511. In support of this proposal, it was stated that the Convention should contain a provision on liquidated damage clauses because this type of contractual clause was widely used in international commerce. Since the rules governing liquidated damage clauses vary between legal systems it would be a practical contribution to international trade to establish a uniform regime governing these types of contractual clauses. It was noted that the proposed article was intended to initiate discussion along these lines.

512. After a brief review of the main features of the draft article, which revealed a number of technical problems, it became apparent that there was considerable support for the idea behind the proposal i.e. that uniform rules regulating liquidated damage clauses would be an important contribution to the facilitation of international trade and commerce. However, it was generally considered that establishing a unified regime to regulate liquidated damage clauses was a complex problem which warranted more attention than could be given at this stage of the deliberations in respect of this draft Convention. Furthermore, liquidated damage clauses were also important in many types of contracts which fell outside the scope of the Convention. For all these reasons it would be preferable to deal with the liquidated damage clauses in a separate instrument which could be applied to all types of international contracts and not be restricted to international contracts for the sale of goods.

Decision

513. The Committee, after deliberation, recommends to the Commission that it request the Secretary-General to consider, as part of the study on the future long-term programme of work of the Commission which is to be presented at the eleventh session of the Commission, the feasibility and desirability of establishing a uniform regime governing liquidated damage clauses in international contracts. [page 61]

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Pace Law School Institute of International Commercial Law - Last updated July 27, 2007
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