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Article 75. Avoidance: Damages Established by Substitute Transaction

TEXT OF ARTICLE 75

If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74.


OUTLINE OF ISSUES

Reproduced with permission of UNCITRAL

75A Substitute transaction after avoidance

75A1 Resale by aggrieved seller

75A2 Repurchase by aggrieved buyer

75B Relationship between avoidance and substitute transaction

75B1 Reasonable substitute transaction

75B2 Reasonable period after avoidance

75C Damages recoverable

75C1 Difference between contract price and price in substitute transaction

75D Other problems


DESCRIPTORS

Avoidance ; Damages ; Cover transactions


CASE ANNOTATIONS: UNCITRAL DIGEST CASES PLUS ADDED CASES

UNCITRAL has identified relevant cases in Digests containing case annotations for each article of the CISG. UNCITRAL cites 27 cases in its Digest of Art. 75 case law:

Australia      2           Germany      6           Spain         1          
Austria       3 ICC 5 Switzerland   3
China      2 Italy 1 United States        2
France      1 Russian Federation      2 TOTAL:   27

Presented below is a composite list of Art. 75 cases reporting UNCITRAL Digest cases and other Art. 75 cases. All cases are listed in chronological sequence, commencing with the most recent. Asterisks identify the UNCITRAL Digest cases, commencing with the 17 November 2000 citation reported below. Cases are coded to the UNCITRAL Thesaurus.

English texts and full-text English translations of cases are provided as indicated. In most instances researchers can also access UNCITRAL abstracts and link to Unilex abstracts and full-text original-language case texts sourced from Internet websites and other data, including commentaries by scholars to the extent available.

For a case annotated analysis of issues associated with Calculation of Damages under CISG Articles 75 and 76, go to CISG-Advisory Council Opinion No. 8, dated 15 November 2008. Rapporteur: Professor John Y. Gotanda. Opinion unanimously adopted by the CISG-AC: Eric E. Bergsten (Chair); Michael Joachim Bonell, Michael G. Bridge, Alejandro M. Garro, Roy M. Goode, John Y. Gotanda, Sergei N. Lebedev, Pilar Perales Viscasillas, Jan Ramberg, Ingeborg Schwenzer, Hiroo Sono, Claude Witz (Members); Sieg Eiselen (Secretary)

There are scholars who believe that there are circumstances in which the UNIDROIT Principles of International Commercial Contracts may be used to interpret or supplement this Article of the CISG. See match-up of this Article with counterpart provisions of the Principles and commentary on this subject. To the extent this reasoning fits, cases on the counterpart provisions of the UNIDROIT Principles may be relevant. To the extent available, such cases may be found on the Unilex website.
 

United States 29 May 2009 Federal District Court [New York] (Doolim Corp. v. R Doll LLC et al.) 75A1

France 27 May 2008 Cour d'appel [Appellate Court] Rennes (Brassiere cups case) 75A2 [translation available]

United States 16 April 2008 U.S. District Court [New York] (Macromex Srl. v. Globex International, Inc.)
 

Denmark 17 October 2007 Højesteret [Supreme Court] (Motorcycle case)

China October 2007 CIETAC Arbitration Award [CISG 2007/03] (CD-R and DVD-R production line systems case) 75A1 [translation available]

Spain 20 February 2007 Appellate Court Madrid (Sunprojuice DK, Als v. San Sebastian, S.c.A.) 75A2 [translation available]

Belgium 22 January 2007 Hof van Beroep [Appellate Court] Antwerp (N.V. Secremo v. Helmut Papst) 75A1 [translation available]
 

Netherlands 19 July 2006 Rechtsbank [District Court] Arnhem (Skoda Kovarny v. B. van Dijk Jr. Staalhandelmaatschappij B.V.) 75A [translation available]

China May 2006 CIETAC Arbitration Award [CISG 2006/06] (Canned oranges case) 75A2 [translation available]

Belgium 24 April 2006 Hof van Beroep [Appellate Court] Antwerpen (GmbH Lothringer Gunther Grosshandelsgesellschaft für Bauelemente und Holzwerkstoffe v. NV Fepco International) 75A [translation available]

Russia 13 April 2006 Arbitration Award 105/2005 [translation available]

Netherlands 1 March 2006 Rechtbank [District Court] Arnhem 75A [translation available]

Poland 27 January 2006 Supreme Court (Metallurgical sand case) 75A2 [translation available]

Denmark 20 January 2006 Sø-og Handelsrets Domme [Maritime and Commercial Court] Copenhagen (Motorcycle case)
 

Spain 26 September 2005 Appellate Court Palencia (Printing machine case) 75A2 [translation available]

China 22 August 2005 CIETAC Arbitration Award [CISG 2005/13] (Valve case) [translation available]

Mexico 26 May 2005 Distrito Federal. Acuerdo del Quinto Tribunal Colegiado en Materia Civil del Primer Circuito (Agrofrut Rengo, S.A. v. Levadura Azteca, S.A. de C.V) [Amparo proceeding No. 292/2005 (2915/2005). Appellant: Agrofrut Rengo]

Spain 31 March 2005 Audiencia Provincial [Appellate Court] Valencia (Oranges case) 75A [translation available]

Russia 16 March 2005 Arbitration Award 75/2004 75B [translation available]

China 28 February 2005 CIETAC Arbitration Award [CISG 2005/06] (Wool case) 75A1 [translation available]

Egypt 16 January 2005 Alexandria Center for International Arbitration (Semi-dried dates case) [English text]
 

Belgium 20 October 2004 Hof van Beroep [Appellate Court] Gent 75B [translation available]

Germany 15 September 2004 Oberlandesgericht [Appellate Court] München (Furniture leather case) 75A [translation available]

Austria 29 July 2004 Oberlandesgericht [Appellate Court] Graz (Construction equipment case) 75A1 [translation available]

Germany 22 July 2004 Oberlandesgericht [Appellate Court] Düsseldorf 75A [translation available]

Belgium 10 May 2004 Hof van Beroep [Appellate Court] Gent 75A2 [translation available]

Germany 21 April 2004 Oberlandesgericht [Appellate Court] Düsseldorf [15 U 88/03] [translation available]

Estonia 19 February 2004 Ringkonnakohus [Appellate Court] Tallinn [translation available]

Spain 2 February 2004 Audiencia Provincial [Appellate Court] Barcelona 75A1
 

Germany 26 November 2003 Landgericht [District Court] Hamburg (Phtalic Anhydride case) 75A2 [translation available]

Spain 5 November 2003 Audiencia Provincial [Appellate Court] Vizcaya

China 26 June 2003 CIETAC Arbitration Award [CISG 2003/10] (Alumina case) 75A1 [translation available]

Hungary 2003 Szegedi Itelotabla [Appellate Court] (Spray pump case) [translation available]
 

China 30 December 2002 CIETAC Arbitration Award [CISG 2002/30] (Manganese case) 75A1 [translation available]

Switzerland 12 December 2002 Kantonsgericht [District Court] Zug 75A1 [translation available]

China 8 November 2002 CIETAC Arbitration Award [CISG/2002/05] (Canned asparagus case) 75A2 [translation available]

Switzerland 5 November 2002 Handelsgericht [Commercial Court] des Kantons Aargau [translation available]

Netherlands 15 October 2002 Netherlands Arbitration Institute Case No. 2319 75A [English text]

China 9 October 2002 CIETAC Arbitration Award [CISG 2002/13] (Elevator case) 75A [translation available]

China 9 August 2002 CIETAC Arbitration Award [CISG 2002/21] (Yellow phosphorus case) 75A2 [translation available]

China 10 June 2002 CIETAC Arbitration award 75A2 [translation available]

Austria 11 July 2002 Oberster Gerichtshof [Supreme Court]

Austria 31 May 2002 Oberlandesgericht [Appellate Court] Graz (Timber case) 75A1 [translation available]

Spain 13 May 2002 Appellate Court Murcia 75A1 ; 75B ; 75C

Switzerland 25 February 2002 Kantonsgericht [District Court] Schaffhausen [translation available]

China 4 February 2002 CIETAC Arbitration Award [CISG/2002/03] (Styrene monomer case) 75A1 [translation available]

China 4 February 2002 CIETAC Arbitration Award [CISG 2002/17] (Steel bar case) 75A1 ; 75B1 [translation available]

Austria 24 January 2002 Oberlandesgericht [Appellate Court] Graz 75A1 [translation available]

Germany 9 January 2002 Bundesgerichtshof [Supreme Court] [translation available]
 

Germany 21 December 2001 Landgericht [District Court] Hamburg (Natural stones case) 75A2 [translation available]

Australia 12 October 2001 Supreme Court of Queensland, Court of Appeal (Downs Investments v. Perwaja Steel) 75B ; 75C

Italy 28 September 2001 Milan Arbitration proceeding (Steel wire case) [English text]

Germany 30 July 2001 [District Court] Braunschweig 75C [translation available]

China 22 March 2001 CIETAC Arbitration Award [CISG/2001/02] (Mung bean case) 75A1 [translation available]

Belgium 29 January 2001 Rechtbank van Koophandel [District Court] Ieper
 

* Australia 17 November 2000 Supreme Court of Queensland (Downs Investments v. Perwaja Steel) 75B ; 75C

* Switzerland 15 September 2000 Bundesgericht [Federal Supreme Court] [4C.105/2000] 75A [translation available]

China 10 August 2000 CIETAC Arbitration award 75A2 [translation available]

China 17 July 2000 Higher People's Court [Appellate Court] of He'nan Province (Minterrnet S.A. v. He'nan Local Product Import and Export Company) 75A [translation available]

Russia 6 June 2000 Arbitration award 406/1998 75A [translation available]

* Austria 28 April 2000 Oberster Gerichtshof [Supreme Court] 75A [translation available]

China 27 April 2000 CIETAC Arbitration Award [CISG/2000/05] (Wool case) 75A1 [translation available]

Germany 6 April 2000 Landgericht [District Court] München 75A [translation available]

* Austria 9 March 2000 Oberster Gerichtshof [Supreme Court] [translation available]

China 11 February 2000 CIETAC Arbitration award 75A2 [translation available]

China 1 February 2000 CIETAC Arbitration award [translation available]

* Spain 28 January 2000 Tribunal Supremo [Supreme Court] 75A [translation available]

* Russia 24 January 2000 Arbitration award 54/1999 [translation available]

ICC 2000 International Court of Arbitration, Case 10329 75A1 [English text]
 

ICC 20 December 1999 International Court of Arbitration (Copper cable case) 75C [translation available]

Denmark 10 November 1999 Veste Landsret [Western High Court] [translation available]

ICC August 1999 International Court of Arbitration, Case 9083 [translation available]

ICC July 1999 International Court of Arbitration, Case 9448 [English text]

China 4 June 1999 CIETAC Arbitration Award [CISG/1999/28] (Industrial raw material case) 75A1 [translation available]

Hungary 25 May 1999 Budapest Arbitration award Vb 97142 75A

* Germany 27 April 1999 Oberlandesgericht [Appellate Court] Naumburg [translation available]

China 12 April 1999 CIETAC Arbitration Award [CISG/1999/22] (Bud rice dregs case) 75A2 [translation available]

China 8 April 1999 CIETAC Arbitration Award [CISG/1999/21] (New Zealand raw wool case) 75A1 [translation available]

China 29 March 1999 CIETAC Arbitration Award [CISG/1999/14] (Flanges case) 75A [translation available]

China 1 March 1999 CIETAC Arbitration Award [CISG/1999/12] (Canned mandarin oranges case) [translation available]

China 12 February 1999 CIETAC Arbitration Award [CISG/1999/09] (Nickle plating production line equipment case) 75A [translation available]

China 12 February 1999 CIETAC Arbitration Award [CISG/1999/08] (Chrome plating production line equipment case) 75C [translation available]

* France 4 February 1999 Cour d'appel [Appellate Court] Grenoble 75A [translation available]

* Germany 13 January 1999 [Appellate Court] Bamberg 75A2 [translation available]

China 6 January 1999 CIETAC Arbitration Award [CISG/1999/04] (Australian raw wool case) 75A1 [translation available]

ICC 1999 International Court of Arbitration, Case 10274 75A1 [English text]
 

China 25 December 1998 CIETAC Arbitration Award [CISG/1998/10] (Basic pig iron case) 75A2 [translation available]

China 25 December 1998 CIETAC Arbitration Award [CISG/1998/11] (Pig iron case) 75A [translation available]

* Italy 11 December 1998 Corte di Appello [Appellate Court] Milano 75A [translation available]

Russia 22 October 1998 Arbitration award 196/1997 [translation available]

Netherlands 2 October 1998 Arrondissementsrechtbank [District Court] 's-Hertogenbosch (Malaysia Dairy Industries v. Dairex Holland) [translation available]

Taiwan 15 May 1998 Shangwu zhongcai xiehui [Business Arbitration Association]

Russia 5 March 1998 Arbitration award 160/197 75A [translation available]

Austria 12 February 1998 Oberster Gerichtshof [Supreme Court] [translation available]
 

China 16 December 1997 CIETAC Arbitration Award [CISG/1997/35] (Hot-dipped galvanized steel coils case) 75A1 [translation available]

China 30 November 1997 CIETAC Arbitration Award [CISG/1997/33] (Canned oranges case) 75A2 ; 75B1 [translation available]

China 8 October 1997 CIETAC Arbitration Award [CISG/1997/29] (Industrial tallow case) 75A1 [translation available]

China 29 September 1997 CIETAC Arbitration Award [CISG/1997/28] (Aluminum oxide case) 75A1 [translation available]

* Switzerland 26 September 1997 Handelsgericht [Commercial Court] Aargau (Cutlery case) 75A [translation available]

China 18 August 1997 CIETAC Arbitration Award [CISG/1997/26] (Vitamin C case) 75B ; 75C1 [translation available]

China 21 July 1997 CIETAC Arbitration Award [CISG/1997/22] (Yam-dyed fabric case) 75A1 [translation available]

Germany 9 July 1997 Oberlandesgericht [Appellate Court] München [7 U 2070/97] [translation available]

China 22 May 1997 CIETAC Arbitration Award [CISG/1997/13] (Soybean oil case) [translation available]

Netherlands 22 May 1997 Arrondissementsrechtbank [District Court] Rotterdam

China 7 May 1997 CIETAC Arbitration Award [CISG/1997/12] (Horsebean case) 75A2 [translation available]

China 30 April 1997 CIETAC Arbitration Award [CISG/1997/10] (Molybdenum alloy) 75A1 [translation available]

China 24 April 1997 CIETAC Arbitration Award [CISG/1997/09] (Oxidized aluminum case) [translation available]

China 11 April 1997 CIETAC Arbitration Award [CISG/1997/05] (Silicon metal case) 75A [translation available]

China 6 March 1997 CIETAC Arbitration award 75A1 [translation available]

* Germany 28 February 1997 Oberlandesgericht [Appellate Court] Hamburg 75A2 [translation available]

* Switzerland 20 February 1997 Bezirksgericht [District Court] Saane [translation available]

Germany 31 January 1997 Oberlandesgericht [Appellate Court] Koblenz [translation available]

ICC January 1997 International Court of Arbitration, Case 8786 [English text]
 

China 31 December 1996 CIETAC Arbitration Award [CISG/1996/58] (High carbon tool steel case) 75A1 [translation available]

China 15 November 1996 CIETAC Arbitration Award [CISG/1996/52] (Oxtetrecycline case) 75A2 [translation available]

China 10 October 1996 CIETAC Arbitration Award [CISG/1996/45] (Petroleum coke case) 75A [translation available]

ICC October 1996 International Court of Arbitration, Case 8740 75A [English text]

China 18 September 1996 CIETAC Arbitration Award [CISG/1996/43] (Agricultural products case) 75B [translation available]

China 4 September 1996 CIETAC Arbitration Award [CISG/1996/41] (Natural rubber case) 75A2 ; 75B [translation available]

* ICC September 1996 International Court of Arbitration, Case 8574 75A2 [English text]

China 16 August 1996 CIETAC Arbitration Award [CISG/1996/39] (Dioctyl phthalate case) 75A1 [translation available]

China 30 July 1996 CIETAC Arbitration Award [CISG/1996/33] (Ferro-molybdenum alloy case) 75B1 [translation available]

China 30 July 1996 CIETAC Arbitration Award [CISG/1996/32] (Molybdenum iron case) 75A2 ; 75B [translation available]

China 12 July 1996 CIETAC Arbitration Award [CISG/1996/30] (Nickel-plating machines production-line equipment case) 75A [translation available]

China 12 July 1996 CIETAC Arbitration Award [CISG/1996/29] (Chromate plating machine case) 75A [translation available]

China 12 July 1996 CIETAC Arbitration Award [CISG/1996/28] (Chrome-plating machines production-line equipment) 75A1 [translation available]

Netherlands 15 May 1996 Arrondissementsrechtbank [District Court] Amsterdam

China 29 March 1996 CIETAC Arbitration Award [CISG/1996/15] (Caffeine case) 75A2 [translation available]

China 14 March 1996 CIETAC Arbitration Award [CISG/1996/14] (Dried sweet potatoes case) 75A [translation available]

China 15 February 1996 CIETAC Arbitration Award [CISG/1996/10] (Hot-rolled plates case) 75A1 [translation available]

* Austria 6 February 1996 Oberster Gerichtshof [Supreme Court] [translation available]

China 5 February 1996 CIETAC Arbitration Award [CISG/1996/07] (Antimony ingot case) 75A1 [translation available]

China 5 February 1996 CIETAC Arbitration Award [CISG/1996/06] (Peanut case) 75B [translation available]
 

* United States 6 December 1995 Federal Appellate Court [2nd Circuit] (Delchi Carrier v. Rotorex) 75A

Russia 1 December 1995 Arbitration award 22/1995 75A [translation available]

Switzerland 30 November 1995 Kantonsgericht [District Court] Zug

Egypt 3 October 1995 Arbitration award (Cairo Chamber of Commerce & Industry) [translation available]

Germany 2 October 1995 Landgericht [District Court] Hamburg

China 18 September 1995 Chansha Intermediate People's Court (Skandinaviska v. Hunan Co) 75A2 [translation available]

Germany 21 August 1995 Landgericht [District Court] Ellwangen [translation available]

Austria 23 May 1995 Oberlandesgericht [Appellate Court] Linz

* Australia 28 April 1995 Federal District Court, Adelaide (Roder v. Rosedown)

Russia 25 April 1995 Arbitration award 142/1994 75A1 [translation available]

China 18 April 1995 CIETAC Arbitration Award [CISG/1995/06] (Clothes case) 75A2 [translation available]

* Russia 16 March 1995 Arbitration award 155/1994 75C1 [translation available]

ICC March 1995 International Court of Arbitration, Case 7645 [English text]

* ICC 1995 International Court of Arbitration, Case 8128 75A2 ; 75B1 [translation available]

ICC 1995 International Court of Arbitration, Case 8204
 

* United States 9 September 1994 Federal District Court [Northern Dist. NY] (Delchi Carrier v. Rotorex) 75A

* Germany 14 January 1994 Oberlandesgericht [Appellate Court] Düsseldorf 75A1 ; 75C1 [translation available]

ICC 1994 International Court of Arbitration, Case 7565 [English text]

* ICC 1994 International Court of Arbitration, Case 7531 [English text]
 

China 26 October 1993 CIETAC Arbitration Award [CISG/1993/12] (Frozen beef case) 75A [translation available]

Germany 17 September 1993 Oberlandesgericht [Appellate Court] Koblenz [translation available]

Germany 14 May 1993 Landgericht [District Court] Aachen [translation available]

Germany 28 April 1993 Landgericht [District Court] Krefeld 75A ; 75C

* China 1 April 1993 CIETAC Arbitration award 75C [translation available]

Germany 13 January 1993 Oberlandesgericht [Appellate Court] Saarbrücken (Doors case) [translation available]
 

* Germany 30 September 1992 Landgericht [District Court] Berlin 75A1 [translation available]

* Germany 22 September 1992 Oberlandesgericht [Appellate Court] Hamm (Frozen bacon case) 75B [translation available]

* ICC 1992 International Court of Arbitration, Case 7585
 

* China 30 October 1991 CIETAC Arbitration award 75A [translation available]
 

China 13 June 1989 CIETAC Arbitration award [translation available]

* ICC 1989 International Court of Arbitration, Case 6281 75C1 [English text]


UNCITRAL CASE DIGEST

The UNCITRAL Digest of case law on the United
Nations Convention on the International Sale of Goods
[*]

A/CN.9/SER.C/DIGEST/CISG/75 [8 June 2004]
Reproduced with the permission of UNCITRAL

[Text of Article 75
Digest of Article 75 case law
-    Relation to other articles
-    Conditions on application of Article 75
     -    Avoidance of contract
     -    Substitute transaction
     -    Substitute transaction - reasonable manner
     -    Substitute transaction - reasonable time
-    Calculation of damages
-    Burden of proof; consideration of evidence]
ARTICLE 75

     If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74.

DIGEST OF ARTICLE 75 CASE LAW

1. Article 75 provides that an aggrieved party may claim recovery of the difference between the contract price and the price in a substitute transaction if the original contract has been avoided and if the substitute transaction was concluded in a reasonable manner and within a reasonable time after avoidance.[1] The last clause of article 75 also provides that an aggrieved party may recover further damages under the general damage formula set out in article 74.[2] The formula in article 75 is a familiar one and can be found in domestic sales laws.[3]

Relation to other articles

2. Article 75 sets out the first of two damage formulas applicable if the contract is avoided. Article 75 calculates damages as the difference between the contract price and the price of a substitute transaction, while article 76 calculates damages as the difference between the contract price and a market price when the aggrieved party does not enter into a substitute transaction. Article 76(1) provides that an aggrieved party may not calculate damages under article 76 if it has concluded a substitute transaction.[4] If, however, an aggrieved party concludes a substitute transaction for less than the contract quantity, both articles 75 and 76 may apply. Thus, one decision found that an aggrieved seller who resells only some of the contract goods to a third party may recover damages as to these goods under article 75 and damages as to the unsold goods under article 76.[5] Where the aggrieved party failed to satisfy the conditions for application of article 75, one court applied the "abstract" calculation of article 76 instead.[6]

3. The final clause of article 75 provides that an aggrieved party may recover additional damages under article 74. If the aggrieved party fails to satisfy the conditions for application of article 75, the aggrieved party may nevertheless recover damages under article 74.[7] Even when it might recover under article 75, an aggrieved party may choose to claim damages under article 74 instead.[8] Damages recovered under article 74 may be calculated in much the same way they would be calculated under article 75.[9]

4. Damages recoverable under article 75 are reduced if it is established that the aggrieved party failed to mitigate these damages as provided in article 77. The reduction is the amount by which the loss should have been mitigated. See "Calculation of damages" below.

5. Pursuant to article 6, the parties may agree to derogate from or vary the formula set out in article 75. Several decisions implicitly rely on article 6 when finding that article 75 is not applicable. One decision found that where the parties had agreed that an aggrieved party was entitled to a "compensation fee" if the contract was avoided because of the acts of the other party, the aggrieved party was entitled to recover both the compensation fee and damages under article 75.[10] Another decision concluded that a post-breach agreement settling a dispute with respect to a party's nonperformance displaced the aggrieved party's right to recover damages under the damage provisions of the Convention.[11]

Conditions on application of Article 75

6. Article 75 applies if the contract is avoided and if the aggrieved party concludes a substitute transaction in a reasonable manner and within a reasonable time after avoidance.

Avoidance of contract

7. Recovery of damages under article 75 is available only if the contract has been effectively avoided [12] by the aggrieved party.[13] Substitute transactions concluded before avoidance do not fall within the coverage of article 75.[14] Notwithstanding the condition that the contract be avoided, one court has concluded that, with reference to the need to promote observance of good faith in international trade, the aggrieved party did not have to establish that it had declared the contract avoided when the other party made it clear that it could not perform within the time fixed.[15]

Substitute transaction

8. An aggrieved party seeking damages calculated under article 75 must conclude a substitute transaction. If the seller is the aggrieved party, the substitute transaction is the sale to some other buyer of the goods identified to the avoided contract. An aggrieved buyer concludes a substitute transaction when it buys goods to replace those promised in the avoided contract.[16]

9. Article 75 requires that the substitute transaction be entered into "in a reasonable manner and within a reasonable time after avoidance". There is no express requirement that the price in the substitute transaction be reasonable. Nevertheless, one decision concluded that where an aggrieved seller resold the goods for approximately one-fourth of the contract price the resale was not a reasonable substitute and the court calculated damages under article 76 rather than article 75.[17] If there is a significant difference between the contract price and the price in the substitute transaction the damages recoverable under article 75 may be reduced pursuant article 77 because of the aggrieved party's failure to mitigate damages.[18]

- Substitute transaction - reasonable manner

10. An aggrieved party must conclude the substitute transaction in a reasonable manner. An arbitral tribunal described the requirement that there be a "substitute" transaction as being one where the aggrieved buyer acts as a prudent and careful businessperson who sells goods of the same kind and quality, ignoring unimportant small differences in quality.[19] A sale at market value on approximately the same freight terms was found to be a reasonable substitute sale.[20]

- Substitute transaction - reasonable time

11. An aggrieved party must conclude the substitute transaction within a reasonable time after avoidance of the contract.[21] What time is reasonable will depend on the nature of the goods and the circumstances. Noting that a reasonable time begins to run only when the contract is avoided, a court found that the aggrieved seller acted within a reasonable time when it resold shoes made for the winter season within two months where it was established that most potential buyers had already bought winter shoes by the time the contract was avoided.[22] Another court found that an aggrieved seller who resold the printing press within six months after the additional period given the buyer to perform was within a reasonable time.[23] These decisions assume that the aggrieved party must conclude the substitute transactions within the reasonable time but one decision has apparently construed the reasonable time requirement to mean that a reasonable time must elapse after avoidance before the substitute transaction may be concluded.[24]

Calculation of damages

12. If the conditions for application of article 75 are satisfied, the aggrieved party may recover "the difference between the contract price and the price in the substitute transaction". This amount may be adjusted by adding further damages recoverable under article 74 or by deducting the loss that could have been avoided if the aggrieved party had mitigated its damages in accordance with article 77. Most courts have had little difficulty applying the damage formula set out in article 75.[25]

13. Several decisions have awarded additional damages under article 74 to compensate for incidental damages arising from the breach.[26] There will, of course, be no additional recovery if further damages are not established.[27]

14. Several decisions have reduced the aggrieved party's recovery under article 75 because the aggrieved party failed to mitigate its losses. An aggrieved seller who resold the goods to a third party at a price significantly below not only the original purchase price but also a modified price proposed by the buyer failed to mitigate its damages and the seller was consequently entitled to recover only the difference between the purchase price and the proposed modified price.[28]

There is no reduction if there is no failure to mitigate.[29]

In particular, an aggrieved seller who has the capacity and market to sell similar goods may resell the goods intended for the defaulting buyer to a third party and the aggrieved party need not reduce its damages on the ground that the resale was mitigation pursuant to article 77.[30]

Burden of proof; consideration of evidence

15. Although none of the damage formulas in articles 74, 75 and 76 expressly allocates the burden of proof, one court has concluded that the Convention recognizes the general principle that the party who invokes a right bears the burden of establishing that right and that this principle excludes application of domestic law with respect to burden of proof.[31]

The same opinion concluded, however, that domestic law rather than the Convention governs how a judge should reach its opinion (e.g. the weight to be given evidence) as this was a matter not covered by the Convention.[32]


FOOTNOTES

* The present text was prepared using the full text of the decisions cited in the Case Law on UNCITRAL Texts (CLOUT) abstracts and other citations listed in the footnotes. The abstracts are intended to serve only as summaries of the underlying decisions and may not reflect all the points made in the digest. Readers are advised to consult the full texts of the listed court and arbitral decisions rather than relying solely on the CLOUT abstracts.

[Citations to cisgw3 case presentations have been substituted [in brackets] for the case citations provided in the UNCITRAL Digest. This substitution has been made to facilitate online access to CLOUT abstracts, original texts of court and arbitral decisions, and full text English translations of these texts (available in most but not all cases). For citations UNCITRAL had used, go to <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.]

1. Articles 45(1)(b) and 61(1)(b) provide that the aggrieved buyer and the aggrieved seller, respectively, may recover damages as provided in articles 74 to 77 if the other party fails to perform as required by the contract or the Convention.

2. See paragraph 13 below.

3. See, e.g., CLOUT case no. 102 [ICC International Court of Arbitration, case No. 6281 of 1989; available at <http://cisgw3.law.pace.edu/cases/896281i1.html>] (applying Yugoslav law but also analyzing art. 74).

4. See [ICC International Court of Arbitration, case No. 8574 of September 1996; available at <http://cisgw3.law.pace.edu/cases/968574i1.html>] (no recovery under art. 76 because aggrieved party had entered into substitute transactions within the meaning of art. 75)

5. CLOUT case No. 130 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 14 January 1994; available at <http://cisgw3.law.pace.edu/cases/940114g1.html>]. See also [ICC International Court of Arbitration, case No. 8740 of 1996; available at <http://cisgw3.law.pace.edu/cases/968740i1.html>] (aggrieved buyer unable to establish market price is not entitled to recover under art. 76 and entitled to recover under art. 75 only to the extent it had made substitute purchases); but compare [CHINA CIETAC Arbitration Award of 30 October 1991; available at <http://cisgw3.law.pace.edu/cases/911030c1.html>] (aggrieved buyer who had made purchases for only part of the contract quantity nevertheless awarded damages under art. 75 for contract quantity multiplied by the difference between the contract price and the price in the substitute transaction).

6. CLOUT case No. 227 [GERMANY Oberlandesgericht [Appellate Court] Hamm 22 September 1992; available at <http://cisgw3.law.pace.edu/cases/920922g1.html>] (damages calculated under art. 76 rather than art. 75 where aggrieved seller resold goods for one-fourth of contract price).

7. [ICC International Court of Arbitration, case No. 8574 of September 1996; available at <http://cisgw3.law.pace.edu/cases/968574i1.html>] (recovery allowed under art. 74 where aggrieved party not entitled to recover under art. 75 because it had concluded substitute transactions without having effectively avoided contract).

8. CLOUT case No. 427 [AUSTRIA Oberster Gerichtshof [Supreme Court] 28 April 2000; available at <http://cisgw3.law.pace.edu/cases/000428a3.html>] (aggrieved party may claim under art. 74 even if it could also claim under arts. 75 or 76).

9. CLOUT case No.427 [AUSTRIA Oberster Gerichtshof [Supreme Court] 28 April 2000; available at <http://cisgw3.law.pace.edu/cases/000428a3.html>] (under art. 74 seller can recover difference between cost of acquisition and contract price); CLOUT case No. 243 [FRANCE Cour d'appel [Appellate Court] 4 February 1999; available at <http://cisgw3.law.pace.edu/cases/990204f1.html>] (citing art. 74 but quoting from art. 75) (see full text of the decision); CLOUT case No. 140 [RUSSIA Arbitration Award case No. 155/1994 of 16 March 1995; available at <http://cisgw3.law.pace.edu/cases/950316r1.html>] (citing art. 74 but determining damages as difference between contract price and price in substitute transaction). See also CLOUT case No. 304 [ICC International Court of Arbitration, case No. 7531 of 1994; available at <http://cisgw3.law.pace.edu/cases/947531i1.html>] (citing art. 75 award of damages to aggrieved buyer for preserving and selling goods pursuant to arts. 86, 87 & 88(1); buyer did not purchase substitute goods).

10. CLOUT case No. 301 [ICC International Court of Arbitration, case No. 7585 of 1992; available at <http://cisgw3.law.pace.edu/cases/927585i1.html>] .

11. [CHINA CIETAC Arbitration Award of 1 April 1993; available at <http://cisgw3.law.pace.edu/cases/930401c1.html>].

12. CLOUT case No. 424 [AUSTRIA Oberster Gerichtshof [Supreme Court] 9 March 2000; available at <http://cisgw3.law.pace.edu/cases/000309a3.html>] (no declaration of avoidance); CLOUT case No. 474 [RUSSIA Arbitration Award case No. 54/1999 of 24 January 2000; available at <http://cisgw3.law.pace.edu/cases/000124r1.html>] (no avoidance); CLOUT case No. 277 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 28 February 1997; available at <http://cisgw3.law.pace.edu/cases/970228g1.html>] ; CLOUT case No. 294 [GERMANY Oberlandesgericht [Appellate Court] Bamberg 13 January 1999; available at <http://cisgw3.law.pace.edu/cases/990113g1.html>]; CLOUT case No. 176 [AUSTRIA Oberster Gerichtshof [Supreme Court] 6 February 1996; available at <http://cisgw3.law.pace.edu/cases/960206a3.html>] (declaration of avoidance equivocal so not effective) (see full text of the decision).

13. See CLOUT case No. 362 [GERMANY Oberlandesgericht [Appellate Court] Naumburg 27 April 1999; available at <http://cisgw3.law.pace.edu/cases/990427g1.html>] (a seller, who resold goods after the aggrieved buyer had declared the contract avoided, not entitled to recover damages under art. 75).

14. [ICC International Court of Arbitration, case No. 8574 of September 1996; available at <http://cisgw3.law.pace.edu/cases/968574.html>] (purchases by aggrieved buyer before it had avoided contract not substitute transactions under art. 75); CLOUT case No. 85 [UNITED STATES Delchi v. Rotorex Federal District Court [Northern Dist. of New York] 9 September 1994; available at <http://cisgw3.law.pace.edu/cases/940909u1.html>] affirmed CLOUT case No.138 [UNITED STATES Delchi v. Rotorex Federal Circuit Court of Appeals [2d Circ.] 6 December 1995; available at <http://cisgw3.law.pace.edu/cases/951206u1.html>] (substitute compressors had been ordered before breach).

15. CLOUT case No. 277 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 28 February 1997; available at <http://cisgw3.law.pace.edu/cases/970228g1.html>].

16. CLOUT case No. 85 [UNITED STATES Delchi v. Rotorex Federal District Court [Northern Dist. of New York] 9 September 1994; available at <http://cisgw3.law.pace.edu/cases/940909u1.html>] affirmed CLOUT case No. 138 [UNITED STATES Federal Circuit Court of Appeals [2d Circ.] 6 December 1995; available at <http://cisgw3.law.pace.edu/cases/961206u1.html>] (delivery of compressors ordered from another supplier before seller's breach not substitute goods under art. 75).

17. CLOUT case No. 227 [GERMANY Oberlandesgericht [Appellate Court] Hamm 22 September 1992; available at <http://cisgw3.law.pace.edu/cases/920922g1.html>].

18. [ICC International Court of Arbitration, case No. 8128 of 1995; available at <http://cisgw3.law.pace.edu/cases/958128i1.html>] (higher price paid by aggrieved buyer in substitute transaction justified because of buyer's obligation to deliver goods promptly to sub-buyer).

19. [ICC International Court of Arbitration, case No. 8128 of 1995; available at <http://cisgw3.law.pace.edu/cases/958128i1.html>].

20. [AUSTRALIA Downs Investment v. Perwaja Steel Supreme Court of Queensland 17 November 2000; available at <http://cisgw3.law.pace.edu/cases/001117a2.html>].

21. But see CLOUT case No. 308 [AUSTRALIA Roder v. Rosedown Federal District Court 28 April 1995; available at <http://cisgw3.law.pace.edu/cases/950428a2.html>] (where a seller is unable to resell goods until the breaching buyer returns them the seller has a reasonable time to resell them from the time they are returned and damages should be calculated as of the date of the return) (see full text of the decision).

22. CLOUT case No. 130 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 14 January 1994; available at <http://cisgw3.law.pace.edu/cases/940114g1.html>] (avoidance on 7 August; resale on 6 & 15 October).

23. Bielloni Castello S.p.A. v. EGO S.A. [ITALY Corte di Appello [Appellate Court] Milano 11 December 1998; available at <http://cisgw3.law.pace.edu/cases/981211i3.html>].

24. [ICC International Court of Arbitration, case No. 8574 of September 1996; available at <http://cisgw3.law.pace.edu/cases/968574i1.html>] (reasonable time must pass after avoidance before an aggrieved buyer may purchase substitute goods). But see FCF S.A v. Adriafil Commerciale S.r.l. [SWITZERLAND Bundesgericht [Supreme Court] 15 September 2000; available at <http://cisgw3.law.pace.edu/cases/000915s1.html>] (aggrieved buyer made reasonable substitute purchase even though it concluded promptly after avoidance).

25. See, e.g., CLOUT case No. 140 [RUSSIA Arbitration Award case No. 155/1994 of 16 March 1995; available at <http://cisgw3.law.pace.edu/cases/9503126r1.html>]; CLOUT case No.130 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 14 January 1994 <http://cisgw3.law.pace.edu/cases/940114g1.html>]; CLOUT case No. 301 [ICC International Court of Arbitration, case No. 7585 of 1992; available at <http://cisgw3.law.pace.edu/cases/927585i1.html>]. But see CLOUT case No. 217 [SWITZERLAND Handelsgericht [Commercial Court] Aargau 26 September 1997; available at <http://cisgw3.law.pace.edu/cases/970926s1.html>] (majority of judges awarded seller of custom-made cutler ten percent of purchase price as damages, a sum which included losses incurred on the resale of the cutlery).

26. CLOUT case No. 217 [SWITZERLAND Handelsgericht [Commercial Court] Aargau 26 September 1997; available at <http://cisgw3.law.pace.edu/cases/970926s1.html>] (recovery of transportation costs) (see full text of the decision); CLOUT case No. 130 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 14 January 1994; available at <http://cisgw3.law.pace.edu/cases/940114g1.html>] (recovery of interest on bank loan); [GERMANY Landgericht [District Court] Berlin 30 September 1992; available at <http://cisgw3.law.pace.edu/cases/920930g1.html>] (recovery of legal fees but not sales commission which would have been paid if the buyer had performed).

27. CLOUT case No. 294 [GERMANY Oberlandesgericht [Appellate Court] Bamberg 13 January 1999; available at <http://cisgw3.law.pace.edu/cases/990113g1.html>] (aggrieved buyer failed to prove additional costs were foreseeable under art. 74).

28. CLOUT case No. 395 [SPAIN Tribunal Supremo [Supreme Court] 28 January 2000; available at <http://cisgw3.law.pace.edu/cases/000128s4.html>].

29. CLOUT case No. 427 [AUSTRIA Oberster Gerichtshof [Supreme Court] 28 April 2000; available at <http://cisgw3.law.pace.edu/cases/000428.html>] (see full text of the decision); CLOUT case No.130 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 14 January 1994; available at <http://cisgw3.law.pace.edu/cases/940104g1.html>].

30. CLOUT case No. 427 [AUSTRIA Oberster Gerichtshof [Supreme Court] 28 April 2000; available at <http://cisgw3.law.pace.edu/cases/000428a3.html>] (damages recovered under art. 74). See also Bielloni Castello S.p.A. v. EGO S.A. [ITALY Corte di Appello [Appellate Court] Milano 11 December 1998; available at <http://cisgw3.law.pace.edu/cases/981211i3.html>] (evidence did not establish that aggrieved seller had lost a sale by its resale to a third party).

31. FCF S.A. Adriafil Commerciale S.r.l. [SWITZERLAND Bundesgericht [Supreme Court] 15 September 2000; available at <http://cisgw3.law.pace.edu/cases/000915s1.html>] (breaching party failed to indicate measures aggrieved party should have taken in mitigation). See also CLOUT case No. 217 [SWITZERLAND Handelsgericht [Commercial Court] Aargau 26 September 1997; available at <http://cisgw3.law.pace.edu/cases/970926s1.html>] (aggrieved party has burden of establishing loss) (see full text of decision); [ICC International Court of Arbitration, case No. 7645 of March 1995; available at <http://cisgw3.law.pace.edu/cases/957645i1.html>] ("Under general principles of law" the party claiming damages has burden of establishing existence and amount of damages caused by the breach of the other party).

32. FCF S.A. v. Adriafil Commerciale S.r.l. [SWITZERLAND Bundesgericht [Supreme Court] 15 September 2000; available at <http://cisgw3.law.pace.edu/cases/000915s1.html>] (construing art. 8 of Swiss Civil Code). See also CLOUT case No. 261 [SWITZERLAND Bezirksgericht [District Court] Saane 20 February 1997; available at <http://cisgw3.law.pace.edu/cases/970220s1.html>] (domestic law, rather than Convention, determines how damages are to be calculated if the amount cannot be determined).


CASE ANNOTATED COMPARATIVES
  -  UNDROIT Principles
  -  
PECL comparatives

Remarks on the Manner in which the UNIDROIT Principles
May Be Used to Interpret or Supplement Article 75 of the CISG

Bojidara Borisova [*]
May 2004

  1. Introduction
  2. Substitute transaction
  3. Reasonableness
  4. Damages
  5. Conclusion

I. Introduction

CISG art. 75 and its counterpart UNIDROIT Principles art. 7.4.5. regulate the institute of substitute transaction in a similar manner. Both articles correspond to each other in substance; hence the Official Comments on this article of the UNIDROIT Principles can arguably be used for the interpretation and gap filling of the CISG.[1]

The basic premises that must be taken into consideration when interpreting the text of CISG art. 75 are the characteristics of the substitute transaction, the time and manner in which the substitute transaction should be made, the nature of recoverable damages, any further damages recoverable for additional harm.

Starting with the prerequisite included in both articles - i.e., avoidance of the contract (termination of the contract in the terminology of the Principles) by the injured party - it must be noted that this particular element in CISG art. 75 and UNIDROIT Principles art. 7.4.5 provides for a special application of the general rule applicable to the proof of the existence and of the amount of the harm caused to one of the contracting parties by the other.[2]

The new element that both counterpart articles introduce is the facilitated mechanism for measuring damages that does not require proof of market price, but instead it provides for the comparison between the contractual price and the price of the substitute transaction and the difference defines the amount of the damages.[3]

II. Substitute transaction

The Official Comments to the UNIDROIT Principles contain several instructions on the particularity of the substitute transaction. The replacement transaction must be performed with the intention to substitute the original transaction, which means that its purpose, basic terms and characteristics must be identical with the original transaction to the extent of reasonableness.[4] Consequently both transactions need not be absolutely identical.[5]

According to the Principles, no substitute transaction is performed if the aggrieved party has itself fulfilled the obligation that lay upon the non-performing party. The substitute transaction must be concluded with a different contracting party, because the comparison between the price of the two contracts yields the amount of the remedy. In cases of self-performance, the objective method for measuring damages pursuant to CISG art. 75 cannot be applied; therefore, the other CISG provisions regulating the law for damages will be applicable.[6]

The Principles stipulate that there is no replacement if an aggrieved party, after the termination of the initial contract, uses its equipment for the performance of another contract, which it could have performed at the same time as the first. Hence the substitute transaction rule does not regulate the so-called "lost volume" sales, where the seller has a sufficient supply and insufficient demand.[7]

In the classic lost volume situation, the remedy is provided only to the seller, whereas CISG art. 75 and its counterpart UNIDROIT Principles art 7.4.5. provide a remedy to both contracting parties. CISG art. 75 explicitly states that the damages recovable under this article are provided to the buyer who has bought goods in replacement or to the seller who has resold the goods.[8]

The remedy that both articles regulate is given for the performance of the substitute transaction and not for any other action undertaken by the injured party. That is why the definition of the "substitute transaction" is essential for the application of the specific method for measuring damages that CISG art. 75 provides.[9]

The UNIDROIT Principles Comments, together with CISG art. 75 descriptive methods for defining the replacement transaction, provide a comprehensive description of this term, which facilitates the complete interpretation of CISG art. 75 and its proper application.

III. Reasonableness

The UNIDROIT Principles, similar to the Convention, do not contain a specific definition of the term "reasonableness".[10]

But bearing in mind the fact that "reasonableness" is a general principle of the CISG and as such is mentioned in many of the Convention's provisions,[11] including art. 75, a careful consideration of that term is warranted.

The Official Comments to the UNIDROIT Principles do not contain a thorough examination of the term "reasonableness". The Principles only provide brief and general guidelines of the basic idea that this term carries. According to the Principles, the expression "reasonable time" and "reasonable manner" is meant to avoid the prejudice of the non-performing party by "hasty or malicious conduct".[12]

Consequently, the Principles do not directly indicate the meaning of the term "reasonableness" and the measures that should be applied for its definition, and only point out the results that must be accomplished following the fulfillment of this condition. Each case will require separate consideration and interpretation of the term "reasonableness". The aggrieved party in each case may calculate which is the most appropriate moment for the conclusion of and what are the most appropriate conditions of the substitute transaction; and, thus, act within the boundaries of "reasonableness".[13]

No particular criterion exists for the determination of "reasonableness". The aggrieved party must take into consideration and act as the reasonable person will; i.e., follow the behavior of a hypothetic person acting in a similar situation, having the same quality, engaged in the same branch of business or in the same trade.[14]

The Official Comments to the UNIDROIT Principles prescribe that the aggrieved party should not react "hasty", i.e., must consider thoroughly the situation, the characteristics of the original contract that was breached and the terms and conditions of the substitute transaction. The aggrieved party must also judge the consequences of its behavior (the replacement transaction).[15]

If it is not to the detriment of the non-performing party and it only restores the situation the way it should be if the original contract was diligently performed, than it can be concluded that the "reasonableness" criterion is fulfilled. The requirement to act in a "reasonable manner" will not be fulfilled and art. 75 will not be applicable, if the injured party by concluding the substitute transaction maliciously harms the non-performing party.

From the Official Comments to the UNIDROIT Principles still another peculiarity can be drawn. CISG art. 75 and its counterpart Principles art. 7.4.5 are designed to provide a remedy for the injured contracting party and must restore it into the position that it would have been if the initial contract had been properly performed, but this does not mean that the non-performing party should be excessively damaged. As it is already mentioned, the performance of the substitute transaction must not prejudice the non-performing party. The purpose of the remedy provided in CISG art. 75 and its UNIDROIT Principles counterpart is to mitigate the damages, not to punish the non-performing party.[16]

IV. Damages

Both counterpart provisions use one and the same method for measuring damages in case of a replacement transaction. The rule is that the aggrieved party may recover the difference between the two contract prices. According to the UNIDROIT Principles Official Comments, art. 7.4.5. only established a minimum right of recovery.[17] This conclusion is based on the fact that the aggrieved party may recover further damages under the other provisions in the Principles that regulate the law on damages.[18] Bearing in mind that CISG art. 75 and UNIDROIT Principles art. 7.4.5. correspond in substance, the same inference is also true for CISG art. 75.[19]

Concerning the method for measuring damages there is little room for interpretation, because both articles use very clear wording. The amount of the remedy required under CISG art. 75 and its counterpart UNIDROIT Principles art. 7.4.5. is the difference between the prices of the original transaction and the substitute transaction concluded by the aggrieved party.[20]

Both articles apply the so-called "concrete" method, which uses objective and rather practical criteria for measuring damages caused by a party’s breach of contract.[21]

V. Conclusion

In conclusion, it must be underlined that both counterpart articles represent a specific hypothesis of the general rule regulating the corresponding remedy in case of breach of contract. The remedy provided in CISG art. 75 – and its counterpart UNIDROIT Principles art. 7.4.5 – applies to both contracting parties and consequently gives a general guarantee of the proper performance of the contractual obligations of both the buyer and the seller under an international contract for the sale of goods.

More importantly, both articles, along with the possibility for the innocent party to declare the contract avoided, stipulate an additional method of protection for the injured party by providing the possibility to claim damages.[22]

Therefore, this right might be executed only after the moment of avoidance of the contract is finally defined and the strict requirements outlined in CISG art. 75 and its counterpart UNIDROIT Principles art. 7.4.5. are fulfilled.[23]


FOOTNOTES

* Bojidara Borisova received her law degree from Sofia University "St.Kl.Ohridsky", Bulgaria, in 2001. Currently, she is a Ph.D. candidate at the same university, working on her research project on international investment law. Since July 2003 she is working as a part time legal advisor at the Bulgarian Investment Agency.

1. See Kritzer, General Observations on Use of the UNIDROIT Principles to Help Interpret the CISG, available online <http://cisgw3.law.pace.edu/cisg/text/matchup/general-observations.html> and Liu, Remedies for Non-performance: Perspectives from CISG, UNIDROIT Principles and PECL, available online <http://cisg3.law.pace.edu/cisg/biblio/chengwei-75.html>.

2. See Sutton, Measuring Damages Under the United Nations Convention on the International Sale of Goods, 50 Ohio State Law Journal (1989), 737-752, also available online at <http://cisgw3.law.pace.edu/cisg/biblio/sutton.html>.

3. See Text of Secretariat Commentary on article 71 of the 1978 Draft Convention, available online at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-75.html>.

4. See Flechtner, Remedies Under the New International Sales Convention: The Perspective from Article 2 of the U.C.C., 8 Journal of Law and Commerce (1988) 53-108, also available online at <http://cisgw3.law.pace.edu/cisg/biblio/flecht.html>.

5. See Sutton, op. cit; see also Text of Secretariat Commentary on article 71 of the 1978 Draft Convention, op. cit.

6. See Official Comments on Articles of the UNIDROIT Principles.

7. See Official Comments on Articles of the UNIDROIT Principles, op. cit., Sutton, op. cit. and Saidov, Methods of Limiting Damages under the Vienna Convention on Contract for the International Sale of Goods, 2001, available online at <http://cisgw3.law.pace.edu/cisg/biblio/saidov.html>.

8. See Sutton, op. cit.

9. For the characteristics of the "substitute transaction", see the following case decisions:
Italy 11 December 1998 Appellate Court Milan, <http://cisgw3.law.pace.edu/cases/981211i3.html>;
ICC Arbitration Case No. 8786 of January 1997, <http://cisgw3.law.pace.edu/cases/978786i1.html>;
Switzerland 20 February 1997 District Court Saane, <http://cisgw3.law.pace.edu/cases/970220sl.html>;
China 30 October 1991 CIETAC Arbitration Proceeding, <http://cisgw3.law.pace.edu/cases/911030c1.html>.

10. See Liu, op. cit. and the following case decisions for the determination of the term "reasonableness":
Germany 14 January 1994 Appellate Court Düsseldorf , <http://cisgw3.law.pace.edu/cases/940114gl.html>;
Switzerland 15 September 2000 Supreme Court, <http://cisgw3.law.pace.edu/cases/000915s1.html>;
Netherlands 15 October 2002 Netherlands Arbitration Institute, Case No.2319, <http://cisgw3.law.pace.edu/cases/021015nl.html>.

11. See Comments on the concept of "Reasonableness" in the CISG: A.H.Kritzer, <http://cisgw3.law.pace.edu/cisg/text/reason.html#over

12. Official Comments on Articles of the UNIDROIT Principles, op.cit.

13. See Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention, 3d ed. Kluwer Law International (1999).

14. See Vilus, Commentary on Common Law Institutions in the United Nations Sales Convention, Estudios en Homenaje a Jorge Barrera Graf, Bd. 2, Mexico: Universidad Nacional Autónoma de Mexico (1989) 1431-1457.

15. See Tunc, Commentary of the Hague Convention on International Sale of Goods, Records and Documents of Conference, Vo. 1 - Records, The Hague (1966) 355-391.

16. See Farnsworth, Damages and Specific Relief, 27 Am.J.Comp.L. 247 (1979), also available at <http://cisgw3.law.pace.edu/cisg/biblio/farns.html>. See also Art. 77 CISG, providing for mitigation of damages under the Convention.

17. See the following case decisions, which confirm the statement that as far as it concerns the method for measuring damages the text of art. 75 of the CISG does not provide any difficulty for the national courts or the arbitral tribunals:
ICC Arbitration Case No. 8740 of October 1996, <http://cisgw3.law.pace.edu/cases/968740i1.html>;
ICC Arbitration Case No. 8574 of September 1996, <http://cisgw3.law.pace.edu/cases/968574.html>;
Spain 28 January 2000 Supreme Court, <http://cisgw3.law.pace.edu/cases/000128s4.html>;
Germany 30 July 2001 District Court Braunschweig, <http://cisgw3.law.pace.edu/cases/01730g1.html>.

18. See Text of Secretariat Commentary on article 71 of the 1978 Draft Convention, op. cit. and Flechtner, op. cit.

19. See Saidov, op. cit.

20. See Schlechtriem, Extent and Measure of Damages (CISG Arts. 74-76), in Uniform Sales Law - The UN-Convention for the International Sale of Goods, Vienna: Manz (1986), also available online at <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem.html>, and Liu, op. cit.

21. See Sutton, op. cit., Saidov, op. cit. and case decision Russia 22 October 1998 Arbitration Proceeding 196/1997, <http://cisgw3.law.pace.edu/cases/981022r1.html>.

22. See Vilus, Provisions Common to the Seller and the Buyer, Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lectures, Oceana (1986), also available online at <http://cisgw3.law.pace.edu/cisg/biblio/vilus.html>; and Schlechtriem, op. cit.

23. See for this inference the following case decisions:
Austria 6 February 1996 Supreme Court, <http://cisgw3.law.pace.edu/cases/960206a3.html>;
Russia 24 January 2000 Arbitration Proceeding 54/1999, <http://cisgw3.law.pace.edu/cases/000124r1.html>;
Austria 9 March 2000 Supreme Court, <http://cisgw3.law.pace.edu/cases/000309a3.html>;
Germany 6 April 2000 District Court München, <http://cisgw3.law.pace.edu/cases/000406g1.html>;
Germany 13 January 1999 Appellate Court Bamberg, <http://cisgw3.law.pace.edu/cases/990113g1.html>.


PECL COMPARATIVES

Remarks on the manner in which the Principles of European Contract
Law may be used to interpret or supplement Article 75 of the CISG

Bojidara Borisova [*]
October 2003

1. Introduction
2. Scope of application
3. When is the contract deemed avoided
4. Substitute transaction
5. Reasonableness
6. Damages

1. Introduction

Article 75 of the Convention is part of the set of rules and principles that provide the law of damages in the CISG.[1]

CISG article 75 regulates the operation of a substitute transaction, which is adopted in most legal systems as well as in basic multilateral instruments such as the CISG and the PECL.[2] Pursuant to CISG art. 75, as a result of a breach of contract the aggrieved party may carry out a substitute transaction in a reasonable manner and within a reasonable time after avoidance and may recover the difference between the contract price and the price of the substitute transaction.

The same issue is regulated in substantively identical terms in PECL art. 9:506. However, the drafters of the PECL go further and in other provisions of the European Principles define terms that may help the interpretation and application of PECL art. 9:506 and its counterpart CISG provision.

CISG article 75 provides a method for measuring damages when a party avoids a contract, usually due to a fundamental breach by the other party. This provision represents a specific application of CISG art. 74, which states the general rule for the measurement of damages.[3]

Both CISG art. 75 and PECL art. 9:506 stipulate the same basic premises that have to exist before the substitute transaction takes place.

-   Firstly, one of the contracting parties must breach the contract and in consequence the innocent party must undertake action for the termination of the contract. As far as it concerns this premise, a problem may arise in respect of the determination of the moment when the contract is declared avoided.
- Secondly, there must be a substitute transaction effected by the aggrieved party. Here the issues that have to be discussed are in respect of the substitute transaction's characteristics and aspects.
- Thirdly, the substitute transaction must be performed in a reasonable manner and within a reasonable time after avoidance. Specific attention must be drawn to the concept of "reasonableness".
- Fourthly, the amount of the damages claimed by the aggrieved party must be assessed. The method for measuring damages stipulated in CISG art.75 is seemingly clear but still needs elucidation.
- Finally, CISG art. 75 CISG, like PECL art. 9:506, provides for the possibility of recovery of further damages.

2. Scope of application

CISG article 75 and PECL art. 9:506 deal with the issues of substitute transaction and the amount of recoverable. The basic contractual obligation imposed on both the buyer and the seller is the obligation that each contracting party must perform all of its obligations required by the contract.[4] Logically, the remedy stipulated in CISG art. 75 is applicable to both contracting parties - the buyer and the seller depending on which party breaches the contractual agreement.[5]

3. When is the contract is deemed avoided

In the interpretation of CISG art. 75, the issue of determining the time of avoidance is important because it substantiates the moment from which the "reasonable" time period starts to run. The other provisions which regulate the law of damages in the CISG and the PECL cannot contribute to the clarification of this issue because no clear determination of that issue can be found either explicitly or impliedly. However, article 72(1) of the 1978 Draft Convention, corresponding to art. 76 of the CISG, refers to the time of avoidance as the time when the injured party first could have declared avoidance.[6] The purpose for the creation of such rule had been the desire to prevent the injured party from speculating at the other's expense. The drafters of the final text of the Convention did not elect to include that in this text because of its controversial nature and uncertainty.[7]

In the interpretation of CISG art.75, it must be emphasized that the problem in determining the time of avoidance appears especially in the event of delayed or non-conforming performance. In this situation, the aggrieved buyer cannot undertake a substitute transaction until the moment of avoidance is defined. Some scholars[8] propose that the provision of CISG art. 49(2) be used for identifying the time of avoidance. But especially in the case of art. 49(2)(b)(i), the identification of the exact time of avoidance is difficult and a matter of subjective judgment, because the initial moment from which the reasonable time period starts to run precedes the moment when the buyer could avoid the contract since at that moment the buyer is still not aware of the breach. To draw a general conclusion, the substitute transaction can be made within a reasonable time limit, beginning to run not until the aggrieved party had in fact declared the contract avoided, which must be proved undeniably by the party's conduct.[9]

4. Substitute transaction

Although using slightly different wording, CISG art. 75 and its counterpart PECL provision are substantively similar. It might be said that CISG art. 75 uses a more descriptive method, while the corresponding PECL art 9:506 applies more general terminology that emphasizes the essence of the substitute transaction.

According to the text of the Convention, the remedy provided in CISG art. 75 applies to cases where the initial contract has been avoided and replacement goods have in fact been purchased or the seller has in fact resold the goods. The basic characteristic of the purchase and the resale is their substitute, replacement function. All the other elements of the transaction must be subordinated to this primary function and to the reasonableness criterion. To this effect, the substitute transaction may occur in a different location or have different terms compared to the original transaction, but should not be so different from it in value or nature as not to be a reasonable substitute.[10] Such lack of complete correspondence to the initial transaction may not influence the right to receive the remedy provided in CISG art. 75 if the substitute transaction corresponds to the other premises outlined in it, but may lead to the adjustment of the exact amount of the damages, so that any increase in costs or expenses saved could be taken into consideration.[11] Neither CISG art. 75 nor PECL art. 9:506 provide any other details or specifications concerning the substitute transaction beyond requiring that it should be made in a reasonable manner and within a reasonable time after avoidance.[12]

5. Reasonableness

Although "reasonableness" is considered to be a general principle of the CISG and is mentioned in thirty-seven provisions of the Convention,[13] there can be found no legal definition of the concept in the text of the Convention. Such a definition exists in the PECL, article 1:302, where is said that "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. All relevant factors should be taken into consideration when deciding what is reasonable.[14]

The concept of "reasonableness" outlined in art. 1:302 PECL can be applied to the definition of this issue as regards CISG art. 75. In relation to the interpretation and application of that article of the Convention, it should firstly be determined what is a reasonable period for waiting before the conclusion of the substitute transaction, i.e., what is meant by the expression "within a reasonable time". Next, the nature and the purpose of the avoided contract and respectively the characteristics of the substitute transaction should be examined, i.e., what is meant by the expression "in a reasonable manner".

In general, both aspects of the required "reasonableness" - the reasonable time and the reasonable manner - must be examined within the concept of the "reasonable person",[15] because the manner and the time of acting is a manifestation of a personal and, consequently, subjective choice. To make the determination of the issue more impartial, it should be emphasized that the criterion of a "reasonable person" should be assessed in conformity with the conduct of a person "of the same kind", engaged in the same kind of business or in the same trade, etc.[16]

Examining the "reasonable manner", it must be said that the reasonable person's behavior should be to perform the substitute transaction at the most favorable conditions, i.e., the resale to be made at the highest price reasonably possible in the circumstances, or the cover purchase to be made at the lowest price reasonably possible.[17] The same criteria should be applied for the determination of the fairness of the substitute transaction terms and conditions.

As far as the "reasonable time" is concerned, the concept of the reasonable person must also be applied. In the first place, account should be taken of the nature and the purpose of the avoided contract and respectively of the substitute transaction; secondly, the circumstances of the particular case should be examined; and thirdly, the behavior of the reasonable person is reflected by the usages and the practices of the trade or profession in which he is engaged.

6. Damages

The damages recoverable under CISG art. 75 amount to the difference between the contract price and the price in a reasonable substitute transaction.[18] PECL article 9:506 defines the remedy provided for a substitute transaction in a similar fashion.

Both counterpart articles use the so-called "concrete" method[19] of establishing damages, which accomplishes the common law goal of having contract remedies lead to the "relief of the promisee" instead of the "compulsion of the promisor".[20] This method of establishing damages eliminates the burden of having to prove the market price of the goods and instead applies a more pragmatic criterion.

Under this basic formula for measuring damages, the aggrieved party often may not be able to recover all the damages that it suffered by the breach of the contract - such as additional expenses caused by: receipt of non-conforming goods; necessity to search for substitute goods; advertisement expenses for the resale of the goods under the original contract; loses caused by the later delivery of the substitute transaction goods compared to the original contract date, etc.

Considering the possibility that such additional expenses may occur, plus the desire to restore the aggrieved party into the position that it should have been if the original contract had not been breached, both CISG art. 75 and PECL art. 9:506 stipulate that the injured party may seek further damages under the basic rule for recovery of full compensation. The calculation of these additional damages is based on the principle of foreseeability.[21] This regulation confirms the statement that CISG art. 75 represents a specific application of art. 74 CISG, although a detailed analysis of the latter provision is not a subject of this study.


FOOTNOTES

* Bojidara Borisova received her law degree from Sofia University "St.Kl.Ohridsky", Bulgaria, in 2001. Currently, she is a Ph.D. candidate at the same university, working on her research project on international investment law, more particularly the right of protection of foreign investments in cases of expropriation. For pdf law journal text of this comparative, go to the Nordic Journal of Commercial Law of the University of Turku, Finland, Issue 2003 # 1 <http://www.njcl.utu.fi>.

1. See also the text of CISG articles 74, 76, 77 and 78.

2. See Vilus, Provisions Common to the Obligations of the Seller and the Buyer, Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lectures, Oceana (1986), also available online at <http://cisgw3.law.pace.edu/cisg/biblio/vilus.html>.

3. See Sutton, Measuring Damages Under the United Nation Convention on the International Sale of Goods, 50 Ohio State Law Journal (1989), 737-752, also available online at <http://cisgw3.law.pace.edu/cisg/biblio/sutton.html>. See also the following case decisions [All decisions cited in this note and the subsequent notes are available in original language and English translation at the citations indicated]:

- Austria 6 February 1996 Supreme Court, <http://cisgw3.law.pace.edu/cases/960206a3.html>;
- Austria 9 March 2000 Supreme Court <http://cisgw3.law.pace.edu/cases/000309a3.html>;
- Russia 22 October 1998 Arbitration 196/1997 <http://cisgw3.law.pace.edu/cases/981022r1.html>;
- Austria 28 April 2000 Supreme Court <http://cisgw3.law.pace.edu/cases000428a3.html>, where it is stated that CISG art. 75 is a specific provision about the calculation of damages in the case of avoidance of a contract following a breach.

4. See CISG arts. 30 and 53, stating the principal obligations of the parties.

5. See Sutton, op. cit.

6. The legislative history of CISG art. 76 and its match-up in the 1978 Draft is available online at <http://cisgw3.law.pace.edu/cisg/text/matchup/matchup-d-76.html>.

7. See Schlechtriem, Extent and Measure of Damages (CISG Arts. 74-76), in Uniform Sales Law - The UN-Convention for the International Sale of Goods, Vienna: Manz (1986), also available online at <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem-76.html>.

8. See Schlechtriem, op. cit.

9. See the texts of the following decisions stating that the substitute transaction may be performed only after the contract have been properly avoided:

- Germany 14 January 1994 Appellate Court Düsseldorf <http://cisgw3.law.pace.edu/cases/940114g1.html>;
- ICC Arbitration Case No. 8574 of September 1996 <http://cisgw3.law.pace.edu/cases/968574.html>;
- Russia 24 January 2000 Arbitration 54/1999 <http://cisgw3.law.pace.edu/cases/000124r1.html>;
- Germany 6 April 2000 District Court München <http://cisgw3.law.pace.edu/cases/000406g1.html>;
- Germany 13 January 1999 Appellate Court Bamberg. <http://cisgw3.law.pace.edu/cases/990113g1.html>.
See also the text of Austria 6 February 1996 Supreme Court decision, supra note 3, according to which "the intention of the buyer not to adhere to the contract anymore has to be obvious beyond any doubt".

10. See Sutton, op. cit. See also the legislative history of CISG art. 75 and its match-up in the 1978 Draft Convention, which is available online at <http://cisgw3.law.pace.edu/cisg/text/matchup/matchup-d-75.html>; the Secretariat Commentary on the 1978 Draft provision of CISG art. 75 is available online at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-75.html>.

11. See Text of Secretariat Commentary on article 71 of the 1978 Draft Convention, available online at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-75.html>.

12. See Flechtner, Remedies Under the New International Sales Convention: The Perspective from Article 2 of the U.C.C., 8 Journal of Law and Commerce (1988) 53-108, also available online at <http://cisgw3.law.pace.edu/cisg/biblio/flecht.html>.

13. For a discussion of the concept of "reasonableness" in the CISG, see the editorial comments available online at <http://cisgw3.law.pace.edu/cisg/text/reason.html> and see also the following case decisions:

- Germany 14 January 1994 Appellate Court Düsseldorf, supra note 9;
- Italy 11 December 1998 Appellate Court Milan <http://cisgw3.law.pace.edu/cases/981211i3.html>;
- Netherlands 15 October 2002 Netherlands Arbitration Institute Case No. 2319 <http://cisgw3.law.pace.edu/cases/021015n1.html>.

14. PECL art. 1:302 provides the following definition of "reasonableness": "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."

15. See Schlechtriem, op. cit.

16. See Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention, 3d ed., Kluwer Law International (1999).

17. See Text of Secretariat Commentary on article 71 of the 1978 Draft Convention, op. cit.

18. National courts and arbitral tribunals apply very consistently the method for measuring damages provided in CISG art. 75, which leads to the conclusion that this part of CISG art. 75 generates no controversy. In confirmation of this statement, see the following case decisions:

- Switzerland 20 February 1997 District Court Saane <http://cisgw3.law.pace.edu/cases/970220s1.html>;
- Spain 28 January 2000 Supreme Court <http://cisgw3.law.pace.edu/cases/000128s4.html>;
- Germany 6 April 2000 District Court München, supra note 9;
- Germany 30 July 2001 District Court Braunschweig <http://cisgw3.law.pace.edu/cases/01730g1.html>;
- Austria 28 April 2000 Supreme Court, supra note 3.

19. See, Sutton, op. cit.; see also Saidov, Methods of Limiting Damages under the Vienna Convention on Contracts for the International Sale of Goods, 2001, available online at <http://cisgw3.law.pace.edu/cisg/biblio/saidov.html>. In a similar manner, the Switzerland 15 September 2000 Supreme Court decision, <http://cisgw3.law.pace.edu/cases/000915s2.html>, describes as "concrete" the method of establishing damages used in CISG art. 75.

20. See Farnsworth, Damages and Specific Relief, 27 Am.J.Comp.L. 247 (1979), also available at <http://cisgw3.law.pace.edu/cisg/biblio/farns.html>.

21. In confirmation of the aggrieved party's right to obtain full compensation including the additional costs, see Germany 13 January 1999 Appellate Court Bamberg decision, supra note 9.


Pace Law School Institute of International Commercial Law - Last updated September 15, 2009
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