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Article 77. Mitigation of Damages

TEXT OF ARTICLE 77

A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.


OUTLINE OF ISSUES

Reproduced with permission of UNCITRAL

77A Obligation to take reasonable measures to mitigate damages

77A1 Problems concerning scope of obligation:

77A11 Obligation to stop wasteful production on repudiation

77A12 Effect of right to require performance (arts. 28, 46, 62)

77A13 Effect of right to recover for loss of profit

77A2 Other problems


DESCRIPTORS

Mitigation of loss


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 41 cases in its Digest of Art. 77 case law:

Austria   4           Hungary 1           Russian Federation        2
Canada   1 ICC 6 Spain   1
China   2 Iran-US Tribunal      1 Switzerland   1
Finland   1 Netherlands 2 United States   3
Germany      18 TOTAL 43

Presented below is a composite list of Art. 77 cases reporting UNCITRAL Digest cases and other Art. 77 cases. All cases are listed in chronological sequence, commencing with the most recent. Asterisks identify the UNCITRAL Digest cases, commencing with the 21 June 2002 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 from this list 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.

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.) 77A

Switzerland 18 May 2009 Bundesgerichtshof [Federal Supreme Court] (Packaging machine case)

Brazil 20 May 2009 Appellate Court Rio Grande do Sul (Electro-erosion machine case) [translation available]
 

Slovak Republic 28 October 2008 Supreme Court (Wafers case) 77A [translation available]

France 27 May 2008 Cour d'appel [Appellate Court] Rennes (Brassiere cups case) 77A [translation available]

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

Germany 31 March 2008 Oberlandesgericht [Appellate Court] Stuttgart (Automobile case) [translation available]
 

Brazil 3 July 2007 Appellate Court São Paulo (Gas station fuel case) [translation available]

Germany 21 March 2007 Oberlandesgericht [Appellate Court] Dresden (Stolen automobile case) 77A [translation available]

France 13 February 2007 Cour de cassation [Supreme Court] (Computer motherboard case) [translation available]

Belgium 22 January 2007 Hof van Beroep [Appellate Court] Antwerp (NV Secremo v. Helmut Papst) 77A [translation available]

Germany 12 January 2007 Oberlandesgericht [Appellate Court] Köln (Paperboard containers case) [translation available]
 

Switzerland 12 December 2006 Obergericht [Appellate Court] Thurgau (Building materials case) [translation available]

Switzerland 8 November 2006 Zivilgericht [Civil Court] Basel-Stadt (Packaging machine case)

Germany 19 October 2006 Oberlandesgericht [Appellate Court] Koblenz (T-Shirts case) 77A [translation available]

Netherlands 13 September 2006 Rechtsbank [District Court] 's-Hertogenbosch (Cruise Holdings S.A. v. Wärtsilä Propulsion Netherlands B.V.)

United States 12 September 2006 Federal Appellate Court [11th Circuit Court of Appeals] (Treibacher Industrie, A.G. v. Allegheny Technologies, Inc.) 77A

China September 2006 CIETAC Arbitration Award [CISG 2006/08] (Air purifier case) [translation available]

China 3 August 2006 CIETAC Arbitration Award [CISG 2006/15] (Water pump case) 77A [translation available]

Slovak Republic 26 May 2006 Supreme Court (Wafers case) [translation available]

Denmark 3 May 2006 Højesteret [Supreme Court] (Casting moulds case)

China May 2006 CIETAC Arbitration Award [CISG 2006/06] (Canned oranges case) 77A [translation available]

Belgium 24 April 2006 Hof van Beroep [Appellate Court] Antwerpen (GmbH Lothringer Gunther Grosshandelsgesellschaft für Bauelemente und Holzwerkstoffe v. NV Fepco International) 77A [translation available]

Russia 13 April 2006 Arbitration Award 105/2005 77A [translation available]

United States 4 April 2006 Federal District Court [New Jersey] (Valero Marketing v. Green Oy) 77A

Netherlands 21 March 2006 Gerechtshof [Appellate Court] Arnhem (Toys case)

Netherlands 1 March 2006 Rechtbank [District Court] Arnhem 77A [translation available]

China February 2006 CIETAC Arbitration Award [CISG 2006/16] (Fluorite case) [translation available]

Poland 27 January 2006 Supreme Court (Metallurgical sand case) 77A [translation available]
 

China 15 September 2005 CIETAC Arbitration Award [CISG 2005/15] (Wool and Wooltop case) [translation available]

China 12 September 2005 CIETAC Arbitration Award [CISG 2005/18] (Hydraulic pressure geologic equipment case) 77A [translation available]

China 22 August 2005 CIETAC Arbitration Award [CISG 2005/13] (Valve case) 77A [translation available]

China 13 June 2005 CIETAC Arbitration Award [CISG 2005/12] (Industrial general equipment case) 77A [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]

China 25 May 2005 CIETAC Arbitration Award [CISG 2005/09] (Iron ore case) 77A [translation available]

Finland 24 May 2005 Hovioikeus / hovrätt [Appellate Court] Turku (Radiated spice case) 77A

United States 27 April 2005 U.S. District Court [Alabama] (Treibacher Industrie, A.G. v. TDY Industries, Inc.) 77A

China 7 April 2005 CIETAC Arbitration Award [CISG/2005/01] (Cotton gin motes case) 77A [translation available]

China 24 February 2005 CIETAC Arbitration Award [CISG 2005/07] (Pork case) 77A [translation available]

China 24 February 2005 CIETAC Arbitration Award [CISG 2005/08] (Second pork case) 77A [translation available]

Belgium 31 January 2005 Rechtbank van Koophandel [Commerical Court] Hasselt (BV Wolvega Panelen v. NV FALL) 77A [translation available]

Ukraine 2005 Arbitration Award Case no. 48 77A [translation available]
 

Russia 23 December 2004 Arbitration Award 97/2004 77A [translation available]

Ukraine 27 October 2004 Arbitration Award (Lavatory paper case) 77A [translation available]

Belgium 20 October 2004 Hof van beroep [Appellate Court] Ghent 77A [translation available]

Belgium 11 October 2004 Hof van beroep [Appellate Court] Ghent (NV Frans Bijttebier-Bouckaert v. BV Nooteboom International) [translation available]

China 29 September 2004 CIETAC Arbitration Award [CISG 2004/05] (India rapeseed meal case) 77A [translation available]

Ukraine 23 September 2004 Arbitration Award (Foodstuff) 77A [translation available]

China September 2004 CIETAC Arbitration Award [CISG 2004/07] (Steel products case) 77A [English text]

Austria 29 July 2004 Oberlandesgericht [Appellate Court] Graz (Construction equipment case) 77A [translation available]

France 30 June 2004 Cour de Cassation [Supreme Court] [translation available]

Russia 17 June 2004 Arbitration Award 186/2003 77A [translation available]

Belgium 26 May 2004 Rechtbank van Koophandel [District Court] Kortrijk

Belgium 10 May 2004 Hof van beroep [Appellate Court] Gent 77A [translation available]

Russia 16 February 2004 Arbitration Award 107/2002 77A [translation available]

Spain 2 February 2004 Audiencia Provincial [Appellate Court] Barcelona 77A

Ukraine 12 January 2004 Arbitration Award (Automobile tire case) 77A [translation available]

China 19 January 2003 CIETAC Arbitration Award [CISG 2003/07] (Ferrochrome case) 77A [translation available]
 

Germany 26 November 2003 Landgericht [District Court] Hamburg (Phtalic Anhydride case) 77A [translation available]

China 6 November 2003 CIETAC Arbitration Award [CISG 2003/15] (Fiber glass mesh case) 77A [translation available]

Spain 5 November 2003 Audiencia Provincial [Appellate Court] Vizcaya

Russia 22 October 2003 Arbitration Award No. 134/2001 77A [translation available]

China 17 September 2003 CIETAC Arbitration Award [CISG 2003/14] (Australia cotton case) 77A [translation available]

Germany 15 September 2003 Oberlandesgericht [Appellate Court] Rostock [translation available]

China 26 June 2003 CIETAC Arbitration Award [CISG 2003/10] (Alumina case) 77A [translation available]

China 19 June 2003 CIETAC Arbitration Award [CISG 2003/09] (PTA case) 77A [translation available]

Russia 6 June 2003 Arbitration Award No. 97/2002 77A [translation available]

Netherlands 23 April 2003 Gerechtshof [Appellate Court] 's-Gravenhage 77A [translation available]

China 12 April 2003 CIETAC Arbitration Award [CISG 2003/08] (Pig iron case)
 

China 23 December 2002 CIETAC Arbitration Award [CISG 2002/28] (Hydraulic press case) 77A [translation available]

Switzerland 12 December 2002 Kantonsgericht [District Court] Zug 77A [translation available]

Switzerland 3 December 2002 Handelsgericht [Commercial Court] St. Gallen 77A [translation available]

China 27 November 2002 Higher People’s Court of Ningxia Hui Autonomous Region [translation available]

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

China 4 November 2002 CIETAC Arbitration Award [CISG 2002/08] (Beech log case) 77A [translation available]

Netherlands 15 October 2002 Netherlands Arbitration Institute Case No. 2319 77A [English text]

China 9 October 2002 CIETAC Arbitration Award [CISG 2002/13] (Elevator case) 77A [translation available]

Austria 11 July 2002 Oberster Gerichtshof [Supreme Court]

China 9 August 2002 CIETAC Arbitration Award [CISG 2002/21] (Yellow phosphorus case) 77A [translation available]

* United States 21 June 2002 U.S. Circuit Court of Appeals [4th Cir.] (Schmitz-Werke v. Rockland) 77A

Switzerland 1 March 2002 Zivilgericht [Civil Court] Basel 77A [translation available]

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

United States 12 February 2002 U.S. District Court [Illinois] (Zapata v. Hearthside) 77A

China 4 February 2002 CIETAC Arbitration Award [CISG/2002/03] (Styrene monomer case) 77A [translation available]

China 4 February 2002 CIETAC Arbitration Award [CISG 2002/17] (Steel bar case) 77A [translation available]

Denmark 31 January 2002 Maritime Commercial Court [translation available]

Austria 24 January 2002 Oberlandesgericht [Appellate Court] Graz 77A [translation available]

Austria 14 January 2002 Oberster Gerichtshof [Supreme Court] [translation available]
 

China 28 November 2001 Higher People's Court [Appellate Court] of Jiangsu Province (Shanghai Shen He Import and Export Ltd. v. Japan Itochu Corp.) 77A [translation available]

Germany 30 July 2001 Landgericht [District Court] Braunschweig 77A [translation available]

China 18 July 2001 Zhejiang Cixi People’s Court 77A [translation available]

France 12 June 2001 Cour d'appel [Appellate Court] Colmar 77A [translation available]

China 22 March 2001 CIETAC Arbitration Award [CISG/2001/02] (Mung bean case) 77A [translation available]

China February 2001 CIETAC Arbitration Award [CISG/2001/01] (Equipment, material and services case) [translation available]
 

Russia 6 December 2000 Arbitration Court [Appellate Court for the Moscow Region] [translation available]

Australia 17 November 2000 Supreme Court of Queensland (Downs Investments v. Perwaja Steel)

* Finland 26 October 2000 Helsingin hoviokeus [Helsinki Court of Appeals] [translation available]

Germany 23 October 2000 Oberlandesgericht [Appellate Court] Dresden (Powdered milk case) [translation available]

China 29 September 2000 CIETAC Arbitration Award [CISG 2000/15] (Cushion case) 77A [translation available]

* Switzerland 15 September 2000 Bundesgericht [Federal Supreme Court] [4C.105/2000] 77A [translation available]

China 10 August 2000 CIETAC Arbitration award 77A [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) 77A [translation available]

* Russia 6 June 2000 Arbitration award 406/1998 77A [translation available]

* Germany 9 May 2000 Landgericht [District Court] Darmstadt 77A [translation available]

* Austria 28 April 2000 Oberster Gerichtshof [Supreme Court] 77A [translation available]

China 27 April 2000 CIETAC Arbitration Award [CISG/2000/05] (Wool case) 77A [translation available]

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

Russia 10 February 2000 Arbitration award 340/1999 77A [translation available]

Russia 2 February 2000 Arbitration award 71/1999 77A [translation available]

* Spain 28 January 2000 Tribunal Supremo [Supreme Court] 77A [translation available]

* Canada 26 January 2000 Ontario Court of Appeal (Nova Tool v. London Industries) 77A

* Russia 24 January 2000 Arbitration award 54/1999 77A [translation available]

China 7 January 2000 CIETAC Arbitration Award [CISG/2000/06] (Cysteine case) 77A [translation available]

ICC 2000 International Court of Arbitration, Case 10329 77A [English text]
 

China 31 December 1999 CIETAC Arbitration Award 77A [translation available]

China 17 December 1999 Rizho Intermediate People's Court 77A [translation available]

Denmark 10 November 1999 Veste Landsret [Western High Court]

* Germany 28 October 1999 Oberlandesgericht [Appellate Court] Braunschweig 77A [translation available]

Russia 18 October 1999 Arbitration award 385/1998 [translation available]

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

Russia 27 July 1999 Arbitration award 302/1996 77A [translation available]

Ukraine 9 July 1999 Arbitration Award (Metal production goods) 77A [translation available]

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

Austria 29 June 1999 Oberster Gerichtshof [Supreme Court] [translation available]

China 4 June 1999 CIETAC Arbitration Award [CISG/1999/28] (Industrial raw material case) 77A [translation available]

China June 1999 PRC Arbitration award 77A [translation available]

* ICC June 1999 International Court of Arbitration, Case 9187 77A [English text]

China 31 May 1999 CIETAC Arbitration Award [CISG/1999/27] (Indium ingot case) 77A [translation available]

China 28 May 1999 CIETAC Arbitration award 77A [translation available]

* Hungary 25 May 1999 Budapest Arbitration award Vb 97142 77A

Belgium 18 May 1999 Hof van beroep [Appellate Court] Antwerpen (Vandermaesen Viswaren v. Euromar Seafood) [translation available]

Ukraine 10 May 1999 Arbitration Award (Sunflower seeds meal case) 77A [translation available]

China 12 April 1999 CIETAC Arbitration Award [CISG/1999/22] (Bud rice dregs case) 77A [translation available]

China 8 April 1999 CIETAC Arbitration Award [CISG/1999/21] (New Zealand raw wool case) 77A [translation available]

China 30 March 1999 CIETAC Arbitration Award [CISG/1999/15] (Electric heaters case) 77A [translation available]

China 29 March 1999 CIETAC Arbitration Award [CISG/1999/14] (Flanges case) 77A [translation available]

* Germany 24 March 1999 Bundesgerichtshof [Federal Supreme Court] 77A [translation available]

Germany 19 March 1999 Landgericht [District Court] Zwickau

China 1 March 1999 CIETAC Arbitration Award [CISG/1999/12] (Canned mandarin oranges case) 77A [translation available]

China 6 January 1999 CIETAC Arbitration Award [CISG/1999/04] (Australian raw wool case) 77A [translation available]
 

China 25 December 1998 CIETAC Arbitration Award [CISG/1998/11] (Pig iron case) 77A [translation available]

Canada 16 December 1998 Ontario Court, General Division (Nova Tool v. London Industries) 77A

Austria 15 December 1998 Oberster Gerichtshof [Supreme Court] [translation available]

Denmark 4 November 1998 Randers Byret [County Court]

* Netherlands 2 October 1998 Arrondissementsrechtbank [District Court] 's Hertogenbosch 77A [translation available]

* Germany 2 September 1998 Oberlandesgericht [Appellate Court] Celle 77A [translation available]

China 30 July 1998 CIETAC Arbitration Award [CISG/1998/04] (Cold rolled steel plates case) 77A [translation available]

China 22 June 1998 Shanghai Second Intermediate People's Court [District Court] (China Yitou Group Company. v. Germany Gerhard Freyso LTD GmbH & Co.) 77A [translation available]

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

Bulgaria 12 February 1998 Bulgaria Chamber of Commerce Arbitration award, Case 11/1996 [translation available]

China 20 January 1998 CIETAC Arbitration Award 77A [translation available]
 

China 30 November 1997 CIETAC Arbitration Award [CISG/1997/33] (Canned oranges case) 77A [translation available]

China 29 September 1997 CIETAC Arbitration Award [CISG/1997/28] (Aluminium oxide case) 77A [translation available]

China 8 September 1997 CIETAC Arbitration Award [CISG/1997/27] (BOPP film case) 77A [translation available]

* Germany 21 August 1997 Oberlandesgericht [Appellate Court] Köln 77A [translation available]

China 18 August 1997 CIETAC Arbitration Award [CISG/1997/26] (Vitamin C case) 77A [translation available]

China 5 August 1997 CIETAC Arbitration Award [CISG/1997/25] (Cold-rolled coils case) 77A [translation available]

Germany 31 July 1997 Landgericht [District Court] Göttingen

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

China 26 June 1997 CIETAC Arbitration Award [CISG/1997/17] (Monohydrate zinc sulphate case) 77A [translation available]

* Germany 25 June 1997 Bundesgerichtshof [Supreme Court] 77A1 [translation available]

China 2 June 1997 CIETAC Arbitration Award [CISG/1997/14] (Graphite electrodes scraps case) 77A [translation available]

China 7 May 1997 CIETAC Arbitration Award [CISG/1997/12] (Horsebean case) 77A [translation available]

China 7 May 1997 CIETAC Arbitration Award [CISG/1997/11] (Sanguinarine case) 77A [translation available]

China 30 April 1997 CIETAC Arbitration Award [CISG/1997/10] (Molybdenum alloy) 77A [translation available]

China 11 April 1997 CIETAC Arbitration Award [CISG/1997/05] (Silicon metal case) 77A [translation available]

China 1 April 1997 CIETAC Arbitration Award [CISG/1997/02] (Fishmeal case) [translation available]

* Germany 13 March 1997 Amtsgericht [Lower Court] Berlin-Tiergarten 77A [translation available]

China 6 March 1997 CIETAC Arbitration award 77A [translation available]

* Germany 28 February 1997 Oberlandesgericht [Appellate Court] Hamburg 77A [translation available]

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

* Germany 8 January 1997 Oberlandesgericht [Appellate Court] Köln 77A [translation available]

* ICC January 1997 International Court of Arbitration, Case 8786 77A [English text]

ICC 1997 International Court of Arbitration, Case 8855
 

China 23 December 1996 CIETAC Arbitration Award [CISG/1996/57] (Carbazole case) 77A [translation available]

China 28 November 1996 CIETAC Arbitration Award [CISG/1996/54] (Moly-oxide case) 77A [translation available]

China 25 November 1996 CIETAC Arbitration award 77A [translation available]

China 15 November 1996 CIETAC Arbitration Award [CISG/1996/52] (Oxtetrecycline case) 77A [translation available]

Finland 5 November 1996 [District Court] Kuopio 77A [translation available]

China 26 October 1996 CIETAC Arbitration Award [CISG/1996/49] (Cotton bath towel case) 77A [translation available]

China 23 October 1996 CIETAC Arbitration Award [CISG/1996/48] (Channel steel case) 77A [translation available]

China 17 October 1996 CIETAC Arbitration Award [CISG/1996/47] (Tinplate case) 77A [translation available]

Belgium 8 October 1996 Rechtbank van Koophandel [District Court] Hasselt

* ICC October 1996 International Court of Arbitration, Case 8740 77A [English text]

Russia 26 September 1996 Arbitration award 433/1994 77A [translation available]

Germany 13 September 1996 Oberlandesgericht [Appellate Court] Düsseldorf

China 4 September 1996 CIETAC Arbitration Award [CISG/1996/41] (Natural rubber case) 77A [translation available]

ICC September 1996 International Court of Arbitration, Case 8574 77A [English text]

China 16 August 1996 CIETAC Arbitration Award [CISG/1996/39] (Dioctyl phthalate case) 77A [translation available]

China 8 August 1996 CIETAC Arbitration Award [CISG/1996/36] (Diaper machine case) 77A [translation available]

China 30 July 1996 CIETAC Arbitration Award [CISG/1996/32] (Molybdenum iron case) 77A [translation available]

China 12 July 1996 CIETAC Arbitration Award [CISG/1996/28] (Chrome-plating machines production-line equipment) 77A [translation available]

Netherlands 15 May 1996 Arrondissementsrechtbank [District Court] Amsterdam

China 29 March 1996 CIETAC Arbitration Award [CISG/1996/15] (Caffeine case) 77A [translation available]

* Germany 21 March 1996 Hamburg Arbitration award [translation available]

China 8 March 1996 CIETAC Arbitration Award [CISG/1996/12] (Old boxboard corrugated carton case) 77A [translation available]

China 27 February 1996 CIETAC Arbitration Award [CISG/1996/11] (Wool case) 77A [translation available]

* Austria 6 February 1996 Oberster Gerichtshof [Supreme Court] 77A [translation available]

China 5 February 1996 CIETAC Arbitration Award [CISG/1996/07] (Antimony ingot case) 77A [translation available]

China 30 January 1996 CIETAC Arbitration Award [CISG/1996/05] (Compound fertilizer case) 77A [translation available]
 

* United States 6 December 1995 Federal Appellate Court [2nd Circuit] (Delchi Carrier v. Rotorex) 77A

Russia 1 December 1995 Arbitration award 22/1995

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

China 18 September 1995 Chansha Intermediate People's Court Economic Chamber (Skandinaviska v. Hunan Co) 77A [translation available]

* Netherlands 22 August 1995 Gerechtshof [Appellate Court] Arnhem 77A

* Germany 23 June 1995 Amtsgericht [Lower Court] München 77A [translation available]

Austria 23 May 1995 Oberlandesgericht [Appellate Court] Linz

* Germany 12 May 1995 Amtsgericht [Lower Court] Alsfeld 77A [translation available]

Russia 25 April 1995 Arbitration award 161/1994 77A [translation available]

China 18 April 1995 CIETAC Arbitration Award [CISG/1995/06] (Clothes case) 77A [translation available]

China 22 March 1995 CIETAC Arbitration Award [CISG/1995/05] (Down jacket and winter coat case) 77A [translation available]

China 10 March 1995 CIETAC Arbitration Award [CISG/1995/03] (Polyethylene film case) 77A [translation available]

China 10 March 1995 CIETAC Arbitration Award [CISG/1995/04] (Wool case) 77A [translation available]

* Germany 8 February 1995 Oberlandesgericht [Appellate Court] München [7 U 1720/94] 77A [translation available]

ICC 1995 International Court of Arbitration, Case 8204
 

China December 1994 Fujian Higher People's Court [Appellate Court] [translation available]

* Germany 15 September 1994 Landgericht [District Court] Berlin 77A [translation available]

* United States 9 September 1994 Federal District Court [Northern Dist. NY] (Delchi Carrier v. Rotorex) 77A

China 5 September 1994 CIETAC Arbitration Award [CISG/1994/10] (Weaving machines, tools and accessories case) 77A [translation available]

* Germany 25 August 1994 Landgericht [District Court] Düsseldorf (Fashion goods case) 77A [translation available]

* Austria 15 June 1994 Vienna Arbitration award SCH-4366 77A [translation available]

Germany 4 May 1994 Amtsgericht [Lower Court] Charlottenburg 77A [translation available]

China 30 March 1994 CIETAC Arbitration Award [CISG/1994/04] (Cow's liver fungus case) 71A1 ; 71C1 [translation available]

China 7 March 1994 Guadong Higher People's Court (Zhanjiang Textiles v. Xian Da Fashion)

* Germany 14 January 1994 Oberlandesgericht [Appellate Court] Düsseldorf 77A [translation available]

* ICC 1994 International Court of Arbitration, Case 7331 77A [English text]

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

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

China 10 July 1993 CIETAC Arbitration Award [CISG/1993/09] (Heliotropin case) 77A [translation available]

China 5 July 1993 CIETAC Arbitration Award [CISG/1993/08] (Copperized steel tubes case) 77A [translation available]

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

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

China 9 January 1993 CIETAC Arbitration Award [CISG/1993/03] (Linseed cake case) 77A [translation available]
 

* Germany 6 October 1992 Landgericht [District Court] Berlin 77A [translation available]

* Germany 22 September 1992 Oberlandesgericht [Appellate Court] Hamm (Frozen bacon case) 77A [translation available]

* ICC 1992 International Court of Arbitration, Case 7197 77A

* ICC 1992 International Court of Arbitration, Case 7585 77A [English text]
 

China 16 December 1991 CIETAC Arbitration Award [CISG/1991/05] (Cold-rolled steel plates case) 77A [translation available]

China 30 October 1991 CIETAC Arbitration award 77A [translation available]

Germany 2 September 1991 Oberlandesgericht [Appellate Court] Celle 77A

* China 6 June 1991 [date claim filed] Shenzhen CIETAC Arbitration award 77A [translation available]

Germany 18 January 1991 Landgericht [District Court] Bielefeld
 

* China post-1989 [date claim filed] CIETAC Arbitration award (Contract #QFD890011) 77A [translation available]

* Iran/U.S. Claims Tribunal 28 July 1989 (Watkins-Johnson v. Islamic Republic of Iran) 77A

China 13 June 1989 CIETAC Arbitration award [translation available]

ICC 1989 International Court of Arbitration, Case 6281 77A [English text]
 

Iran/U.S. Claims Tribunal 13 October 1986 (Pepsico v. Islamic Republic of Iran)


CASE DIGEST AND ANALYSIS
-   UNCITRAL's case law digest; and
-   An analysis of CISG jurisprudence

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

A/CN.9/SER.C/DIGEST/CISG/77 [8 June 2004]
Reproduced with the permission of UNCITRAL

[Text of Article 77
Digest of Article 77 case law
-    Relation to other articles
-    Measures to mitigate
     -    Measures by aggrieved buyers
     -    Measures by aggrieved sellers
-    Reduction of damages
-    Notice of mitigations steps
-    Pleading: burden of proof]
ARTICLE 77

     A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.

DIGEST OF ARTICLE 77 CASE LAW

1. Article 77 requires an aggrieved party claiming damages to take reasonable steps to mitigate losses and, if he fails to do so, the breaching party may claim a reduction in the damages recoverable in the amount the loss should have been mitigated. If an aggrieved party does not request damages, whether by way of an affirmative claim or by way of set-off, article 77 does not apply.[1]

Relation to other articles

2. Article 77 appears in Section II (Damages) of Chapter V and therefore does not expressly apply to remedies other than damages that are available under the Convention.

3. Other articles of the Convention may require parties to take specific measures to protect against losses. Articles 85 to 88 provide, for example, that buyers and sellers must take reasonable steps to preserve goods in their possession following breach.[2]

4. Pursuant to article 6, the seller and buyer may agree to derogate from or vary the formula set out in article 77. One decision concluded that if an aggrieved party seeks to enforce a penalty clause in the contract article 77 does not require the aggrieved party to reduce the penalty in order to mitigate the loss.[3]

5. Article 77 does not state at what point in a legal proceeding the issue of mitigation must be considered by a court or tribunal. One decision concluded that the issue of whether mitigation should be considered in a proceeding on the merits or in a separate proceeding to determine damages is a procedural issue governed by domestic law rather than by the Convention.[4]

Measures to mitigate

6. An aggrieved party claiming damages must mitigate them by taking those steps that a reasonable creditor acting in good faith would take under the circumstances.[5] If a contract has already been avoided, an aggrieved party's notice to the breaching party of a proposed act to mitigate does not revoke the earlier avoidance.[6] In some circumstances the aggrieved party may be excused from taking such measures (see paras. 11 & 14 below).

7. Article 77 does not expressly state when the aggrieved party must take measures to mitigate. Several decisions state that an aggrieved party is not obligated to mitigate in the period before the contract is avoided (i.e. at a time when each party may require the other to perform).[7] If an aggrieved party does take measures, however, he must do so within a reasonable time under the circumstances. One decision found that the seller's resale of goods to a third party two months after they had been rejected was reasonable within the context of the fashion industry.[8] Another decision found that the buyer's purchase of substitute goods approximately two weeks after the seller declared that it would not perform was not a failure to mitigate even though the price in a volatile market had risen sharply.[9]

- Measures by aggrieved buyers

8. Decisions have found the following measures by aggrieved buyers to be reasonable: paying another supplier to expedite delivery of already-ordered compressors that could be substituted for defective compressors;[10] contracting with a third-party supplier because of inability of breaching party to deliver molds in time;[11] contracting with a third party to treat leather goods when the seller refused to return the machine sold;[12] continuing to print fabric purchased notwithstanding the discovery of problems with the fabric;[13] requesting permission from a Government authority and proposing to test milk powder in the Free Trade Zone prior to import;[14] using the buyer's own buffer stocks of coal when the seller made late deliveries;[15] proposing to a sub-buyer that the goods the seller delivered late should be accepted with a 10% reduction in price;[16] selling perishable goods even though not required to do so by articles 85 to 88.[17]

9. The aggrieved buyer was found to have failed to mitigate damages in the following circumstances: failure to inspect goods properly and to give documents setting out its claims of non-conformity;[18] failure to examine shipments of aluminum hydroxide before mixing the shipments together;[19] failure to stop the use of vine wax after the aggrieved party had discovered the wax to be defective;[20] failure to look for replacement goods in markets other than the local region;[21] failure to cancel its contract of sale with sub-buyer or to conclude a substitute purchase;[22] failure to provide evidence of the price it received on its sale of non-conforming goods to a sub-buyer;[23] failure to provide evidence as to whether the aggrieved buyer could buy the same product from the wholesaler newly-designated by the seller.[24]

10. Several decisions have denied an aggrieved buyer's claim for reimbursement of expenditures because the expenditures did not limit the loss. One decision declined to award the buyer damages to compensate for the expenses of adapting a machine to process defective wire delivered by the seller because the cost of the adaptation was disproportionate to the purchase price of the wire.[25] A buyer was denied recovery for the costs of translation of a manual to accompany the goods to be resold because the aggrieved buyer failed to notify the seller, which, as it was a multinational company, would already have had manuals in the language into which the manual was translated.[26] A few decisions have denied the aggrieved party's claim for the cost of enforcing its claim for breach of contract through a collection agent or lawyer.[27]

11. Several decisions have found that the buyer's failure to act was not a breach of its duty to mitigate losses. One tribunal found that an aggrieved buyer's failure to buy substitute goods from another supplier was justified by the short delivery time in the contract and the alleged difficulty in finding another supplier.[28] A court concluded that the buyer had not breached its duty to mitigate by its failure to inform the seller that the buyer's sub-buyer needed the goods without delay because it had not been established that the buyer knew of the sub-buyer's production plans.[29]

- Measures by aggrieved sellers

12. Decisions have found the following measures by aggrieved sellers to be reasonable: incurring expenses to transport, store, and maintain the undelivered machinery;[30] reselling goods to a third party.[31]

13. The aggrieved seller was found to have failed to mitigate damages in the following circumstances: drawing on a guaranty before avoiding the contract;[32] reselling goods at a price below the price offered by the breaching buyer when the latter sought unsuccessfully to amend the contract.[33]

14. The seller was excused from taking steps to mitigate in the following circumstances: not reselling the goods during the period when the breaching party was entitled to demand performance on the ground that to require the seller to sell would make it impossible for the seller to perform the original contract;[34] not reselling the stockings made to the buyer's particular specifications.[35]

15. One court has stated that an aggrieved seller's damages are not to be reduced under article 77 by the price received in a resale of the goods where the seller had the capacity and market to make multiple sales. The court reasoned that to treat the resale as a substitute transaction under article 75 meant that the seller would lose a sale bringing the same profit as the first contract.[36]

Reduction of damages

16. The breaching party may claim a reduction in the damages to be awarded to the aggrieved party in the amount by which reasonable mitigation measures would have reduced the loss to the aggrieved party. Several decisions have calculated the reduction without specific reference to the loss that could have been avoided. One decision found that the aggrieved buyer who failed to mitigate should be entitled only to 50% of the difference between the contract price and the price the buyer received when it resold the nonconforming goods to its customers.[37] An arbitral tribunal divided the loss between the aggrieved buyer and the breaching seller who was claiming payment for partial delivery because of the buyer's failure to mitigate damages.[38]

Notice of mitigation steps

17. Article 77 does not explicitly require an aggrieved party to notify the other party of proposed steps to mitigate losses. One decision denied a buyer compensation for the cost of translating a manual where the buyer had failed to notify the seller on the ground that if the buyer had done so the seller could have supplied existing translations.[39]

Pleading; burden of proof

18. The second sentence of article 77 states that the breaching party may claim a reduction in damages for failure to mitigate losses. Decisions divide on which party bears the burden of pleading the failure to mitigate. An arbitral tribunal has stated that the tribunal should review ex officio whether the aggrieved party had complied with its duty to mitigate but that the breaching party had the burden of establishing failure to comply.[40] A court decision, on the other hand, stated that no adjustment to damages will be made if the breaching party fails to indicate what steps the other party should have taken to mitigate.[41] Another decision, however, requires the aggrieved party to indicate the offers for substitute transactions it had solicited before putting the breaching party to the burden of establishing the loss due to failure to mitigate.[42]

19. Decisions on who has the ultimate burden of establishing failure to mitigate consistently place the burden on the breaching party of establishing the failure to mitigate and the amount of consequent loss.[43]


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. CLOUT case No. 424 [AUSTRIA Oberster Gerichtshof [Supreme Court] 9 March 2000, available online at <http://cisgw3.law.pace.edu/cases/000309a3.html>] (see full text of decision).

2. [CHINA Arbitration Award CIETAC 6 June 1991, available online at <http://cisgw3.law.pace.edu/cases/910606c1.html>] (cost of freight for return of goods split between buyer who failed to return goods in a reasonable manner and seller who did not cooperate in return).

3. [NETHERLANDS Gerechtshof [Appellate Court] Arnhem 22 August 1995, available online at <http://cisgw3.law.pace.edu/cases/950822n1.html>] (validity of penalty clause determined under national law).

4. CLOUT case No. 271 [GERMANY Bundesgerichtshof [Supreme Court] 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990324g1.html>] (applying German law).

5. CLOUT case No. 176 [AUSTRIA Oberster Gerichtshof [Supreme Court] 6 February 1996, available online at <http://cisgw3.law.pace.edu/cases/960206a3.html>] (see full text of decision).

6. [GERMANY Landgericht [District Court] Berlin 15 September 1994, available online at <http://cisgw3.law.pace.edu/cases/940915g1.html>].

7. CLOUT case No. 361 [GERMANY Oberlandesgericht [Appellate Court] Braunschweig 28 October 1999, available online at <http://cisgw3.law.pace.edu/cases/991028g1.html>] (requiring seller to resell would make it impossible for seller to perform the original contract during period when breaching party entitled to demand performance); CLOUT case No. 130 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 14 January 1994, available online at <http://cisgw3.law.pace.edu/cases/940114g1.html>].

8. CLOUT case No. 130 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 14 January 1994, available online at <http://cisgw3.law.pace.edu/cases/940114g1.html>] (in August most retailers in Italian market have filled their stock for the coming season and have no reason to buy more goods for the winter season).

9. CLOUT case No. 277 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 14 January 1994, available online at <http://cisgw3.law.pace.edu/cases/940114g1.html>] (transaction characterized as highly speculative).

10. CLOUT case No. 85 [UNITED STATES Delchi Carrier v. Rotorex, Federal District Court (Northern Dist. New York) 9 September 1994, available online at <http://cisgw3.law.pace.edu/cases/940909u1.html>], affirmed, CLOUT case No. 138 [UNITED STATES Delchi Carrier v. Rotorex, Federal Circuit Court of Appeals (2d Circ.) 6 December 1995, available online at <http://cisgw3.law.pace.edu/cases/951206u1.html>].

11. [CANADA Nova Tool v. London Industries, Ontario Court of Appeal 26 January 2000, available online at <http://cisgw3.law.pace.edu/cases/000126c4.html>].

12. CLOUT case No. 311 [GERMANY Oberlandesgericht [Appellate Court] Köln 8 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970108g1.html>].

13. [UNITED STATES Schmitz-Werke v. Rockland, Federal Circuit Court of Appeals (4th Circ.) 17 June 2002, available online at <http://cisgw3.law.pace.edu/cases/020617u1.html>] (continuation both at urging of seller and to mitigate damages; art. 77 not cited).

14. Malaysia Dairy Industries v. Dairex Holland [NETHERLANDS Rechtbank [District Court] 's-Hertogenbosch 2 October 1998, available online at <http://cisgw3.law.pace.edu/cases/981002n1.html>].

15. [ICC International Court of Arbitration case No. 8740 of October 1996, available online at <http://cisgw3.law.pace.edu/cases/968740i1.html>] (seller bore risk that buyer's buffers were insufficient in light of the unreliability of suppliers).

16. [ICC International Court of Arbitration case No. 8786 of January 1997, available online at <http://cisgw3.law.pace.edu/cases/978786i1.html>].

17. CLOUT case No. 104 [ICC International Court of Arbitration case No. 7197 of 1992, available online at <http://cisgw3.law.pace.edu/cases/927197i1.html>] (see full text of the decision).

18. CLOUT case No. 474 [RUSSIA Arbitration Award case No. 54/1999 of 24 January 2000, available online at <http://cisgw3.law.pace.edu/cases/000124r1.html>

19. CLOUT case No. 284 [GERMANY Oberlandesgericht [Appellate Court] Köln 21 August 1997, available online at <http://cisgw3.law.pace.edu/cases/970821g1.html>

20. CLOUT case No. 271 [GERMANY Bundesgerichtshof [Supreme Court] 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990324g1.html>].

21. CLOUT case No. 318 [GERMANY Oberlandesgericht [Appellate Court] Celle 2 September 1998, available online at <http://cisgw3.law.pace.edu/cases/980902g1.html>].

22. CLOUT case No. 476 [RUSSIA Arbitration Award case No. 406/1998 of 6 June 2000, available online at <http://cisgw3.law.pace.edu/cases/000606r1.html>].

23. CLOUT case No. 303 [ICC International Court of Arbitration case No. 7331 of 1994, available online at <http://cisgw3.law.pace.edu/cases/947331i1.html>].

24. [FINLAND Helsingfors hovrätt [Appellate Court] Helsinki 26 October 2000, available online at <http://cisgw3.law.pace.edu/cases/001026f5.html>].

25. CLOUT case No. 235 [GERMANY Bundesgerichtshof [Supreme Court] 25 June 1997, available online at <http://cisgw3.law.pace.edu/cases/970625g1.html>].

26. CLOUT case No. 343 [GERMANY Landgericht [District Court] Darmstadt 9 May 2000, available online at <http://cisgw3.law.pace.edu/cases/000509g1.html>] (see full text of the decision)

27. CLOUT case No. 296 [GERMANY Amtsgericht [Lower Court] Berlin-Tiergarten 13 March 1997, available online at <http://cisgw3.law.pace.edu/cases/970313g1.html>] (employing debt collection agency in breaching party's jurisdiction rather than bringing suit in aggrieved party's jurisdiction and enforcing this judgment in breaching party's jurisdiction); CLOUT case No. 410 [GERMANY Landgericht [District Court] Berlin 6 October 1992, available online at <http://cisgw3.law.pace.edu/cases/921006g1.html>] (hiring collection agency contrary to duty to mitigate because it was foreseeable that buyer would refuse to and the additional expenses of hiring an attorney would have been included in trial costs recoverable from defaulting buyer).

28. CLOUT case No. 166 [GERMANY Arbitration Award, Schiedsgericht der Handelskammer Hamburg 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/970621g1.html>] (no "manifest violation" of duty to mitigate) (see full text of decision).

29. [GERMANY Amtsgericht [Lower Court] München 23 June 1995, available online at <http://cisgw3.law.pace.edu/cases/950623g1.html>].

30. CLOUT case No. 301 [ICC Court of International Arbitration case No. 7585 of 1992, available online at <http://cisgw3.law.pace.edu/cases/927585i1.html>] (need to mitigate because of size and specifications of machinery) (see full text of the decision).

31. CLOUT case No. 130 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 14 January 1994, available online at <http://cisgw3.law.pace.edu/cases/940114g1.html>]; CLOUT case No. 93 [AUSTRIA Arbitration Award [Internationales Schiedsgericht der Bundedskammer der gewerblichen Wirtschaft - Wien] case No. SCH-4366 of 15 June 1994, available online at <http://cisgw3.law.pace.edu/cases/940615a3.html>] (resale by seller not only justified but may have been obligatory under art. 77); [IRAN-U.S. CLAIMS TRIBUNAL Watkins-Johnson Co. v. Islamic Republic of Iran, 28 July 1989, available online at <http://cisgw3.law.pace.edu/cases/890728i2.html>] (seller's right to sell undelivered equipment in mitigation of its damages is consistent with recognized international law of commercial contracts).

32. CLOUT case No. 133 [GERMANY Oberlandesgericht [Appellate Court] München 8 February 1995, available online at <http://cisgw3.law.pace.edu/cases/950208g1.html>] (aggrieved seller drew on guaranty following breach without taking steps to mitigate).

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

34. CLOUT case No. 361 [GERMANY Oberlandesgericht [Appellate Court] Braunschweig 28 October 1999, available online at <http://cisgw3.law.pace.edu/cases/991028g1.html>].

35. [CHINA CIETAC Arbitration Award, contract No. QFD890011, post-1989, available online at <http://cisgw3.law.pace.edu/cases/900000c1.html>].

36. CLOUT case No. 427 [AUSTRIA Oberster Gerichtshof [Supreme Court] 28 April 2000, available online at <http://cisgw3.law.pace.edu/cases/000428a3.html>] (see full text of the decision).

37. CLOUT case No. 474 [RUSSIA Arbitration Award case No. 54/1999 of 24 January 2000, available online at <http://cisgw3.law.pace.edu/cases/000124r1.html>].

38. CLOUT case No. 265 [HUNGARY Budapest Arbitration Award case No. Vb 99142 of 25 May 1999, available online at <http://cisgw3.law.pace.edu/cases/990525h1.html>].

39. CLOUT case No. 343 [GERMANY Landgericht [District Court] Darmstadt 9 May 2000, available online at <http://cisgw3.law.pace.edu/cases/000509g1.html>].

40. [ICC International Court of Arbitration case No. 9187 of June 1999, available online at <http://cisgw3.law.pace.edu/cases/999187.html>].

41. FCF S.A. v. Adriafil Commerciale S.r.l. [SWITZERLAND Bundesgericht [Supreme Court] 15 September 2000, available online at <http://cisgw3.law.pace.edu/cases/000915s1.html>].

42. CLOUT case No. 318 [GERMANY Oberlandesgericht [Appellate Court] Celle 2 September 1998, available online at <http://cisgw3.law.pace.edu/cases/980902g1.html>] (although burden of establishing failure to mitigate on breaching party but irrelevant in case because buyer was obliged to indicate which offers for a substitute transaction she obtained and from which companies).

43. CLOUT case No. 318 [GERMANY Oberlandesgericht [Appellate Court] Celle 2 September 1998, available online at <http://cisgw3.law.pace.edu/cases/980902g1.html>] (see full text of the decision); CLOUT case No. 176 [AUSTRIA Oberster Gerichtshof [Supreme Court] 6 February 1996, available online at <http://cisgw3.law.pace.edu/cases/960206a3.html>] (breaching party had to establish how other party had breached its duty, the possible alternatives and the loss that would have been presented; issue raised on appeal without specific reference to facts that might be relevant) (see full text of the decision).


ANALYSIS OF CISG CASE LAW

Reprinted by special permission of Northwestern University School of Law. 34 Northwestern Journal of International Law and Business (Winter 2004) 299-440.[*]

excerpt from

The Interpretive Turn in International Sales Law:
An Analysis of Fifteen Years of CISG Jurisprudence

Larry A. DiMatteo, Lucien Dhooge, Stephanie Greene,
Virginia Maurer and Marisa Pagnattaro

[...]

c. Doctrine of Mitigation

In accordance with Article 77, a party who is subject to a breach of contract must take "such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach."[776] If a party fails to take measures to mitigate damages, the party in breach may claim a reduction in damages in the amount by which the loss should have been mitigated. [777] The duty to mitigate damages also applies to an anticipatory breach of contract.[778]

The timing of the non-breaching party's mitigation efforts is crucial to the ultimate calculation of damages owed. A party is not required to mitigate before the date of avoidance. However, mitigation must take place [page 423] within a reasonable time. The reasonable time standard provides the flexibility needed to consider a wide range of divergent fact patterns. For example, a two-month timeframe for mitigation would be deemed, under most circumstances, to be unreasonable. In a case involving the sale of winter shoes, one court held that resale nearly two months after avoidance was within a reasonable time frame, especially in light of the fact that most retailers had already filled their winter orders by the date of the avoidance.[779]

In mitigating its loss, a party obligated to resell goods should make reasonable efforts to undertake a profitable resale.[780] Examples of failure to mitigate include only making efforts to effect replacement purchases in the buyer's region, without taking into account other suppliers in the country or abroad,[781] and failure to make a covering purchase after the seller terminated a contract with respect to non-delivered goods.[782]

[...]


FOOTNOTES

* For a subsequent text on this subject by these authors, see Larry A. DiMatteo, Lucien Dhooge, Stephanie Greene, Virginia Maurer & Marisa Pagnattaro, "International Sales Law: A Critical Analysis of CISG Jurisprudence", Cambridge University Press (2005) 241 p.

[...]

776. CISG, supra note 4, at art. 77. See Arbitral Tribunal Vienna, SCH-4366, Jun. 15, 1994, supra note 78; NAI, 2319, Oct. 15, 2002 (Neth.), available at <http://cisgw3.law.pace.edu/cases/021015n1.html> [English text]; OLG München 7 U 1720/94, supra note 701. Note that there is no need to mitigate as long as a contract between the parties still exists. See, e.g., OLG Braunschweig 2 U 27/99, Oct. 28, 1999 (F.R.G.), available at <http://cisgw3.law.pace.edu/cases/991028g1.html> [English translation by Jarno Vanto, translation edited by Ruth M. Janal]. ICC Court of Arbitration 7331 of 1994, available at <http://cisgw3.law.pace.edu/cases/947331i1.html> [English text] (party must mitigate even if timely notice is given to the other party).

777. Id. See generally, BGH VIII ZR 121/98, Mar. 24, 1999, supra note 95.

778. Secretariat Commentary to Art. 77, available at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-77.html>.

779. OLG Düsseldorf 17 U 146/93, Jan. 14, 1994, supra note 718.

780. OLG Rostock 1 U 247/94, Jul. 27, 1995, supra note 569.

781. OLG Celle 3 U 246/97, Sept. 2, 1991, supra note 742.

782. Court of Arbitration of the Hungarian Chamber of Commerce VB/97142, May 25, 1999, supra note 718.

[...]

Go to complete text of Analysis of Fifteen Years of CISG Jurisprudence


ANNOTATED COMPARATIVES
-  UNIDROIT Principles
-  PECL comparative

Commentary on the manner in which the UNIDROIT Principles
may be used to interpret or supplement Article 77 of the CISG

Elisabeth Opie [*]
January 2005

  1. Introduction
  2. Duty to mitigate
  3. Reasonableness
  4. Reimbursement of Expenses
  5. Burden of Proof
  6. Conclusion

I. Introduction

If the underlying principle of the United Nations Convention on the International Sale of Goods (CISG or Convention) is reasonableness,[1] Art. 77 CISG could certainly require a plaintiff or respondent to rise to the challenge of being reasonable during what is likely a difficult situation - when he or she is already losing money (or is about to)[2] because of the other party to the international sales contract.

This paper examines the obligations imposed on parties pursuant to Art. 77 CISG by comparing this Article with Art. 7.4.8 UNIDROIT Principles (Mitigation of harm).[3]

Article 77, appearing in Section II of the Convention (Damages),[4] applies only when a party is claiming damages for breach of contract,[5] and will not apply in relation to any other remedy sought (such as specific performance).[6] Article 77 states:

A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.

Article 7.4.8 of the UNIDROIT Principles (UNIDROIT), entitled 'Mitigation of Harm', also appearing in a Section entitled 'Damages' provides:

(1) The non-performing party is not liable for harm suffered by the aggrieved party to the extent that the harm could have been reduced by the latter party's taking reasonable steps.

(2) The aggrieved party is entitled to recover any expenses reasonably incurred in attempting to reduce the harm.

II. Mitigation of Loss

Commentators have variously described the obligation imposed by Art. 77 as a statement of 'public policy against waste',[7] a duty to mitigate,[8] a duty to cooperate [9] and 'an obligation for oneself'.[10] [11] A literal interpretation of this Article does place a requirement on the party relying on breach to do something - provided that it is reasonable in the circumstances - to reduce loss or damage.[12] If there is a failure to do so by the party relying on breach (again on a literal interpretation), there is a consequence at the option of the non-performing party [13] to seek to have any damages otherwise payable reduced. The difference between Art. 77 CISG and Art. 7.4.8 UNIDROIT Principles is not that one appears to impose an obligation on a party and the other does not. The point of difference is that Art. 7.4.8(1) expressly provides that a reduction of damages (harm suffered by the aggrieved party) is automatic if the aggrieved party could have taken reasonable steps to reduce the harm (but fails to do so).[14] On this reading, the difference between the option and a right to have damages reduced would appear minimal - in practice, the non-performing party would most likely seek to reduce any damages payable for a breach of contract.[15]

III. Reasonableness

'The obligation stated in Art. 77 CISG is to be interpreted taking into account the competing interests of the parties,[16] as well as commercial customs and the principle of good faith.'[17] The obligation imposed by Art. 77 is also to be interpreted in light of the words 'reasonable in the circumstances'.[18] There is no definition of 'reasonable' in the CISG or the UNIDROIT Principles.[19]

The assessment of reasonableness is a question of fact and will take into account circumstances such as the time within which action was undertaken to diminish an avoidable loss [20] and whether a substitute transaction was conducted on an arm's length basis.[21] Conversely, '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.'[22]

Given the case-by-case assessment which is necessarily undertaken for a reduction of damages pursuant to Art. 77, the types of factors to be considered (such as perishability of goods, fluctuation in market price, availability of a market, third party obligations) and the measures taken by the party not in breach is not exhaustive.[23] However, in determining reasonableness of action in a particular set of circumstances, guidance may be sought from the commentary accompanying Art. 7.4.8(1) UNIDROIT Principles.[24] It states:[25]

The purpose of this article is to avoid the aggrieved party passively sitting back and waiting to be compensated for harm which it could have avoided or reduced. Any harm which the aggrieved party could have avoided by taking reasonable steps will not be compensated.

Evidently, a party who has already suffered the consequences of non-performance of the contract cannot be required in addition to take time-consuming and costly measures. On the other hand, it would be unreasonable from the economic standpoint to permit an increase in harm which could have been reduced by the taking of reasonable steps.

'The creditor should attempt to undertake everything possible in order to diminish the loss or at least to prevent its increase'.[26]

IV. Reimbursement of expenses

Article 7.4.8(2) UNIDROIT Principles expressly provides that an 'aggrieved party is entitled to recover any expense reasonably incurred in attempting to reduce the harm'. This entitlement is implied from the wording of Art. 77 CISG, which provides an example of loss which might be recouped by the party relying on breach of contract (i.e. loss of profit). A literal reading of this Article is that this example of loss is non-exhaustive. Any loss is limited to that loss which is reasonable in the circumstances, and foreseeable.[27]

In dealing with recovery of expenses separately from liability for harm suffered, Art. 7.4.8(2) UNIDROIT Principles appears to sever an obligation of the aggrieved party (mitigation of harm) from a right of the aggrieved party (recovery of expenses). Article 77 CISG, however, imposes the obligation to mitigate both loss and loss of profits (thereby including expenses). To this extent, Art. 77 CISG appears to place a broader obligation on the aggrieved party to mitigate than the UNIDROIT Principles.

V. Burden of Proof

The non-performing party has to prove that the aggrieved party failed to comply with its obligation to mitigate its loss (including loss of profit) pursuant to Art. 77 CISG.[28] As noted above, there are two elements separately provided for under Art. 7.4.8 UNIDROIT Principles: (i) the obligation to mitigate and (ii) the right to be compensated for reasonable expenses. Pursuant to Art. 7.4.8 UNIDROIT Principles, the burden of proof will rest on the non-performing party to demonstrate that the aggrieved party has failed to reduce the harm by taking reasonable steps. As it is the aggrieved party who will assert that the expenses incurred as part of its actions to mitigate harm were reasonable in the circumstances, then the burden on proving this will rest on the aggrieved party.[29]

If the above comments on the breadth of the obligation to mitigate under Art. 77 CISG are accepted, then the onus would rest with the non-performing party under this Article in relation to both the loss and expenses incurred in mitigating that loss. That is, burden will not lie with the aggrieved party to prove that measures taken to mitigate expenses were reasonable. There is a rebuttable presumption which lies in favor of the aggrieved party.

VI. Conclusion

The above comparative analysis between Art. 77 CISG and Art. 7.4.8 UNIDROIT Principles demonstrates a number of differences in both the drafting and interpretation of these Articles. Most notably, Article 77 CISG does appear to be drafted in favor of the aggrieved party, whereas Art. 7.4.8 UNIDROIT Principles takes into account the interests of both the non-performing and the aggrieved party. In spite of these differences, Art. 7.4.8 UNIDROIT Principles and its accompanying commentary do facilitate the interpretation of Art. 77 CISG, and confirm that an obligation (by whatever name) is placed on an aggrieved party to reduce any damage caused by the non-performing party if it is reasonable to do so in the circumstances.


FOOTNOTES

* Elisabeth Opie is Senior Legal Counsel for the Commonwealth Scientific and Industrial Research Orgnisation, Australia, and Editor-in-Chief of the Vindobona Journal of International Commercial Law and Arbitration.

1. See generally, Kritzer, A., 'Reasonableness' at <http://cisgw3.law.pace.edu/cisg/text/reason.html#view>.

2. It is noted that the United Kingdom disagreed with the Commentary that the principle of mitigation applies to anticipatory breach: Legislative History, 1980 Vienna Diplomatic Conference, 'Analysis of Comments and Proposals by Governments and International Organizations on the Draft Convention on Contracts for the International Sale of Goods, and on Draft Provisions Concerning Implementation, Reservations and Other Final Clauses' prepared by the Secretary-General, Document A/CONF.97/9 ('Legislative History'), original in English, 21 February 1980; available at <http://cisgw3.law.pace.edu/cisg/Fdraft.html>. Article 73 in the Text of [1978] Draft Convention on Contracts for the International Sale of Goods approved by the United Nations Commission on International Trade (see Official Records of the General Assembly, Thirty-third Session, Supplement No. 17 (A/33/17) chap. II, para. 28) was the precursor to Art. 77 and is substantively similar to Art. 77. For a general discussion on the principle of mitigation and anticipatory breach, see Saidov, D., 'Methods of Limiting Damages under the Vienna Convention on Contracts for the International Sale of Goods' December 2001, at Part 4(c); available at <http://cisgw3.law.pace.edu/cisg/biblio/saidov.html#iv>.

3. For use of the UNIDROIT Principles to assist in the interpretation on CISG, see Kritzer, A, 'General Observations on Use of the UNIDROIT Principles to Help Interpret the CISG, available at <http://cisgw3.law.pace.edu/cisg/text/matchup/general-observations.htm>. It is noted that other UNIDROIT Principles may be relevant to the interpretation of Art. 77 CISG, including Art. 7.4.1. This paper does not include a discussion of these articles, but does note that the use of the term 'harm' in the UNIDROIT Principles is given the same meaning as 'damages' under the CISG. Nor does this paper deal with other relevant provisions in the CISG, such as Art. 74 which requires that any damages sought under the CISG must be foreseeable and arise as a consequence of the breach for which damages are sought.

4. Sutton notes that, '[a] subspecies of the many remedial provisions found in the Convention, the measurement of damages rules are located in articles 74-78. These sections address the following issues: (1) a general rule for the measurement of damages [Article 74] (2) the measurement of damages in contract avoidance situations by substitute transactions [Article 75] or by current price [Article 76], (3) the mitigation of damages [Article 77], (4) and the interest on money damages [Article 78]. See Sutton, J.S., 'Measuring Damages Under the United Nations Convention on the International Sale of Goods, 50 Ohio State Law Journal (1989) 737-752, at Section IIIA; also available online at <http://cisgw3.law.pace.edu/cisg/biblio/sutton.html>.

5. See Kritzer, A. H., extract from Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods, Kluwer Law International (1994); also available at <http://cisgw3.law.pace.edu/cisg/biblio/kritzer2.html#loss>.

6. During the drafting of the Convention, the proposal by the United States of America in respect of Art. 58 of the draft Convention [which became CISG article 62] that the mitigation principle be extended to a corresponding modification or adjustment of other remedies than damages was rejected. See Legislative History, fn 3. Domestic doctrines of mitigation may, however, come into play in the case of specific performance by virtue of Art. 28 CISG.

7. McMahon, J.P., 'Guide for Managers and Counsel: Drafting CISG Contracts and Documents and Compliance Tips for Traders', <http://cisgw3.law.pace.edu/cisg/contracts.html#a77>.

8. See Sutton, J.S., 'Measuring Damages Under the United Nations Convention on the International Sale of Goods', 50 Ohio State Law Journal (1989) 737-752, at Part B, Section 5; also available at <http://cisgw3.law.pace.edu/cisg/biblio/sutton.html>.

9. See Vilus, J., 'Provisions Common to the Obligations of the Seller and the Buyer', in Sarcevic, P & Volken P (eds.), International Sale of Goods: Dubrovnik Lectures, Oceana (1986) at p. 250; also available at <http://cisgw3.law.pace.edu/cisg/biblio/vilus.html>.

10. See Austria 24 January 2002 Oberlandesgericht [Appellate Court] Graz, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/020124a3.html>, citing Karollus, UN-Kaufrecht, at p. 225.

11. 1 Cf. Saidov, D., 'Methods of Limiting Damages under the Vienna Convention on Contracts for the International Sale of Go' December 2001, at Part 4(a); available at <http://cisgw3.law.pace.edu/cisg/biblio/saidov.html#iv>.

12. The requirement is imposed on a party relying on breach by the words 'must take such measures [...] to mitigate the loss [...]'.

13. The second sentence of Art. 77 states that 'the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated'.

14. Although these words are not contained in Art. 7.4.8(1) UNIDROIT Principles, the author considers that this Principle only makes sense if the harm has not been reduced when it could have been.

15. This comment is based on a literal interpretation of Art. 77; see infra fn 13. Cf. Arbitration (ICC) June 1999, Case 9187, available at <http://www.cisg-online.ch/cisg/urteile/705.htm>, where it was held that, '[t]he party claiming damages has an obligation to mitigate the loss (Art. 77 CISG), else it loses its right to damages. Whether the claiming party has complied with this duty has to be considered by the Arbitral Tribunal ex officio, whereby the burden of proof for the fact that a loss could have been avoided lies with the party owing damages (Stoll in V Caemmerer/Schlechtriem, op. cit., N 12 to Art. 77 CISG) [citations included in decision]'.

16. For this reason, it would appear contrary to the underlying principles of the Art. 77 to permit a party relying on a breach to fail to take into account the cost of the mitigating measures to the party in breach. '[M]itigation principles do not appear to require the injured party to choose the remedy which would be least expensive to the party in breach', but the measures taken must be reasonable in the circumstances; (see Text of Secretariat Commentary on Art. 73 of the 1978 Draft [draft counterpart of CISG article 77], presentation available at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-77.html>). Arguably, the duty to mitigate does apply to the cost of measures employed to mitigate the loss: see 'IV. Reimbursement of expenses' below.

17. See Austria 24 January 2002 Appellate Court Graz, citing Karollus, UN-Kaufrecht, at p. 225.

18. Secretariat Commentary, op.cit., Comment 1. Article 7(1) CISG also 'suggests that the international character of the Convention and the need to promote uniformity in its application and the observance of good faith in international trade are to be taken into account in the interpretation process': Netherlands 15 October 2002 Netherlands Arbitration Institute, Case No. 2319 at paragraph 104; available at <http://cisgw3.law.pace.edu/cases/021015n1.html>. For an online presentation of Art. 7 CISG, which provides the Convention's in-built interpretative mechanism, see <http://cisgw3.law.pace.edu/cisg/text/e-text-07.html>.

19. See Kritzer, A.H., 'Reasonableness'; available at <http://www.cisg.law.pace.edu/cisg/text/reason.html>; and Borisova, B., 'Remarks on the Manner in which the UNIDROIT Principles May Be Used to Interpret or Supplement Article 75 of the CISG', May 2004, (including commentary and cases cited at fn 10); available at <http://www.cisg.law.pace.edu/cisg/biblio/borisova1.html#10>.

20. See Switzerland 12 December 2002 Kantonsgericht [District Court] Zug, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/021212s1.html>, where the seller sold goods to an alternate buyer two days after seller knew with certainty that the original buyer would not take delivery of the goods the subject of the agreement. The court held that the two days was not too long a period for the seller to enter into a substitute transaction, despite the fact that the market price of the goods had fallen in the meantime. The calculation of damages was therefore calculated by taking into account the benefit received from the substitute transaction, with the difference in price being payable by the original buyer (including interest from date of payment under the contract). See also Denmark 31 January 2002 Sø og Handelsretten [Maritime Commercial Court] (Dr. S. Sergueev Handelsagentur v. DAT-SCHAUB A/S), case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/020131d1.html>.

21. Netherlands 15 October 2002 Netherlands Arbitration Institute, Case No. 2319 at paragraph 151; case presentation and English text available at <http://cisgw3.law.pace.edu/cases/021015n1.html>; Austria 24 January 2002 Oberlandesgericht [Appellate Court] Graz, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/020124a3.html>.

22. See Austria 14 January 2002 Oberster Gerichtshof [Supreme Court], case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/020114a3.html>.

23. Saidov notes that there are a wide range of measures which might be undertaken to mitigate damages under Art. 77: see Saidov, D., 'Methods of Limiting Damages under the Vienna Convention on Contracts for the International Sale of Goods' December 2001, at Part 4(b); available at <http://cisgw3.law.pace.edu/cisg/biblio/saidov.html#iv>.

24. It is noted that the words 'in the circumstances' do not appear in Art. 7.4.8 UNIDROIT Principles. Nonetheless, the assessment of reasonableness will still be done a case-by-case basis under that Article.

25. UNIDROIT Principles of International Commercial Contracts [1994], full text in English available online at <http://www.unidroit.org/english/principles/contracts/principles1994/fulltext.pdf>.

26. See Vilus, J., 'Provisions Common to the Obligations of the Seller and the Buyer', in Sarcevic, P & Volken P (eds.), International Sale of Goods: Dubrovnik Lectures, Oceana (1986) at p. 251; also available at <http://cisgw3.law.pace.edu/cisg/biblio/vilus.html>. Similar comments have been made in relation to Art. 7.4.8(1). The Official Commentary to Art. 7.4.8 of the UNIDROIT Principles, which is available online at <http://cisgw3.law.pace.edu/cisg/principles/uni77.html#official>, Comment 1 states that:

The steps to be taken by the aggrieved party may be directed either to limiting the extent of the harm, above all when there is a risk of it lasting for a long time if such steps are not taken (often they will consist in a replacement transaction: see Art. 7.4.5), or to avoiding any increase in the initial harm.

27. See Art. 74 CISG. It is noted that other provisions in the CISG also place obligations on the party relying on breach to do certain things to, for example, preserve delivered, non-conforming goods at the cost of the non-performing party (Art. 85 CISG).

28. Arbitration (ICC) June 1999, Case 9187, available at <http://www.cisg-online.ch/cisg/urteile/705.htm>.

29. It is generally accepted that the burden of proof rests with the party making the assertion.


PECL COMPARATIVE

Comparison between the provisions of the CISG on mitigation of losses
(Art. 77) and the counterpart provisions of PECL (Art. 9:505)

Bruno Zeller [*]
April 2005

  1. General Comments
  2. Question of Reasonableness
  3. Conclusion

I. General Comments

Mitigation is a principle which is an obligation in the common law but not clearly defined in civil law. In arbitration practices mitigation has become a general principle of international trade and Mustill refers to the principle as "[to] constitute the lex mercatoria in its present form."[1] He went further by noting that mitigation is merely treated as obvious.[2]

The CISG has incorporated the doctrine of mitigation specifically into article 77 but the rule is also reflected in articles 85 and 86 which are concerned with the preservation of the goods after a breach. The idea behind article 77 is that the plaintiff cannot recover damages or losses which he should have avoided. This principle is also accepted in the Principles of European Contract Law (PECL) in article 9:505.[3]

The first obvious difference between PECL and the CISG is that article 77 clearly states that losses include loss of profit whereas PECL is silent on this aspect. Whether loss of profit is included in the PECL can be assumed, as the official commentary to article 9:501, specifically illustration 4, explains that loss of profit is included.[4] Furthermore, article 9:502 PECL stipulates that a party has the right to recover losses and "the gain of which it has been deprived."[5] In addition, the CISG can be used as an analogical tool which would confirm that losses as explained in PECL includes loss of profits and therefore are identical to the CISG and, hence, mitigation follows the same pattern of losses in the counterpart provisions.

Another point worth noting is that PECL in its language only refers to losses whereas the CISG introduces the word "damages" in addition to losses. The question is, whether the term "damages" is to be understood to expand on losses? Stoll is correct to argue that this includes the conclusion of cover transactions - or even avoidance must be contemplated - if it will reduce damages.[6] PECL arguably covers the same ground by reference to a reduction of losses "by taking reasonable steps". Such language is broader than the one in article 77 as it will allow a court or tribunal wider discretion as to what is included in "reasonable steps". Whether avoidance or cover transactions are included in "reasonable steps" is not certain; however, it is not specifically excluded either

A real problem seems to be the choice of the words. The CISG text provides that a party who relies on a breach of contract "must" take measures to mitigate the loss. Arguably in its language this article imposes a duty on the plaintiff to mitigate the "loss." Whereas PECL only suggests that the non-performing party is not liable for damages which the aggrieved party "could" have reduced. The wording is not as strong as the one in the CISG as it appears to rely on a subjective appraisal of the situation by the non-breaching party and to that effect by the court or tribunal.

The question, which has been posed, is whether, due to the choice of wording, article 77 imposes a legal obligation[7] and hence allows the original breaching party to claim a set-off. The Secretariat Commentary to article 73 of the 1978 Draft (draft counterpart of CISG article 77)suggests that it is "a duty owed by the injured party to the party in breach"[8] whereas another view is that the injured party "is under an obligation to herself to mitigate the loss."[9] This view can be supported because the second sentence of article 77 makes it clear that should the aggrieved party not follow the advice given in the first sentence he will bear some of the costs associated with the breach. It could not have been clearer that "must" is linked to the second sentence which means that inactivity, or the failure to take reasonable steps to mitigate, are no excuse.[10]

This could be contrasted with the English view which can be formulated as follows:

"A plaintiff is under no duty to mitigate his loss, despite the habitual use by the lawyers of the phrase 'duty to mitigate'. He is completely free to act as he judges to be in his best interests."[11]

Arguably the English view is mirrored by PECL but not the CISG where the reading suggests that the non-breaching party has a legal duty to mitigate the loss.

PECL simplified the whole process by starting with the premise that the non-performing party simply is not liable for any losses which the aggrieved party could have avoided. It does require a positive step by the aggrieved party to mitigate any possible losses.

II. Question of Reasonableness

Both the CISG and PECL suggest that reasonable steps must be taken in order to mitigate the loss. In both instruments this is not a question of law but rather a question of fact. Every case will have different circumstances; hence, if a person takes steps which are in good faith - which is a principle found in both instruments - he has acted reasonably specifically if the measures adequately prevent losses. However it will be within the court's discretion to evaluate measures of mitigation. Obviously, if no measures have been taken then a party will be in breach of CISG article 77 or PECL article 9:505. It is never suggested that the efforts to mitigate must be exceptional.

The argument is, however, how far, or how much action is required to satisfy the reasonable standard test. The Supreme Court of Austria considered that:

"a possible measure to reduce damages is reasonable, if it could have been expected as bona fide conduct from a reasonable person in the position of the claimant under the same circumstances."[12]

It appears that, given the facts of the case, the court chose to look at the objective measure of a situation. As such, excessive measures, or those which entail unreasonable high expenses and risks, are not necessary.[13] This has been confirmed by the Austrian Supreme Court which noted that:

"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."[14]

This conclusion was confirmed by a Swiss court pointing also to the 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. In essence the court stated:

"Seller's counterclaim may be reduced to the extent he 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."[15]

A reading of PECL counterpart provisions leads to the same result. However, article 9:505(2) 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.

Not surprisingly, courts have been relatively strict in their interpretation of CISG article 77. A Swiss Court dismissed the claim of the plaintiff that it had to pay damages to a third party as it neglected to involve the defendant in the negotiations with the third party. In such a case, the defendant could have contributed to the costs or even indemnified the plaintiff.[16]

Not all cases are controversial or difficult, as seen in a Russian arbitration proceeding. The tribunal paid attention to the fact that the buyer did not take any measures whatsoever to mitigate the loss:

"He did not cancel the contract with a third party, nor conclude substitute transactions and did not resort to article 76 when calculating the damages."[17]

The same approach was taken by the Intermediate People's Court of Shandong Province. The court apportioned the main responsibility to the buyer who "did not take reasonable measures and just let the losses grow until the value of the PTO shrimp was nearly extinguished."[18] Arguably, though, the courts would have come to the same conclusion if they had applied the PECL to the case.

Mitigation is not necessarily restricted to minimizing actual costs. Courts have viewed the circumstances of the contract in very broad terms and merely ask the question "could the situation have been changed but for the buyer's behaviour". An interesting case is where the buyer did not produce evidence asked for by the arbitral panel to determine whether he took measures to eliminate a negative impression in relation to the seller's products. The arbitral panel found it inexcusable that the buyer in effect agreed with the unsubstantiated allegations of his consumers.[19] Whether the same result would have been achieved under PECL is debatable. It would depend on the definition of "loss." Under the CISG this debate is avoided as "damages" are also included in article 77 and a negative impression will cause damages but not necessarily a loss.

III. Conclusion

In summary, the above cases illustrate that courts and tribunals simply ask whether the prudent business person has taken all reasonable steps, and has done all he can to keep costs to the breaching party to a minimum. Merely ignoring the situation is in breach of CISG article 77, so is willful adherence to contractual terms. In effect, it is of little value to try to give a definition of what is "reasonable", as each court has demonstrated that in a practical sense the word "reasonable" is well understood. One point noted by Saidov is that mitigation can bring about certain forms of costs as well. Arguably, article 77 is broad enough here to cover the situation where the mitigating party incurred costs, which could be off-set.[20] However, costs to mitigate will be subject to the same rules as the mitigation process itself. If costs are not necessary, the mitigating party cannot claim any recompense. It is argued that PECL in most circumstances would deliver the same results as those achieved by the CISG. The only question which possibly is unanswered is whether PECL article 9:505 could be as broadly interpreted as the CISG, i.e., as set-off and mitigation of abstract damages such as negative impressions or loss of reputation.


FOOTNOTES

* Senior Lecturer in Law, Victoria University Law School, Melbourne Australia.

1. Mustill M., "The New Lex Mercatoria: The First Twenty-Five Years" 4 Arb. Int'l (1988) 86 - 119, at 113 [available on the Internet courtesy of CENTRAL Transnational Law Database (TLDB)].

2. Ibid at 100.

3. Lando, O., and Beale, H., Principles of European Contract Law, Kluwer Law (2000), 445.

4. Ibid at 435.

5. Ibid at 438.

6. Stoll H. in Schlechtriem P., Kommentar zum Einheitlichen UN-Kaufrecht, (2000), 587.

7. Saidov D., "Methods of limiting Damages under the Vienna Convention on Contracts for the International Sale of Goods", available online at <http://cisgw3.law.pace.edu/cisg/biblio/saidov.html>

8. Secretariat Commentary to Article 73 of the 1978 Draft, para 3, available online at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-77.html>

9. Bernstein H. and Lookofsky J., Understanding the CISG in Europe, Kluwer, 2nd ed. (2003), 103.

10. Zeller B., Damages under the Convention on Contracts for the International Sale of Goods, Oceana Press (2005), 112.

11. Sir John Donaldson, in The Solholt [1983] 1 Lloyd's Rep. 605.

12. Austria 6 February 1996 Oberster Gerichtshof [Supreme Court], case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/960206a3.html>

The plaintiff, a German buyer, and the defendant, an Austrian seller, entered into an agreement for the FOB delivery of a certain quantity of propane gas. See analysis of Austrian case law by Willibald Posch & Thomas Petz, "Austrian Cases on the UN Convention on Contracts for the International Sale of Goods", 6 Vindobona Journal of International Commercial Law and Arbitration (2002) 1-24, at 23:

"When dealing with the Convention's provision on mitigation of damages (Article 77 CISG), the Court held that the loss, including lost profits, suffered from a breach of contract may only be claimed to the extent to which the loss should not have been mitigated by measures that would have been reasonable in the circumstances. Examples of such reasonable measures to mitigate the loss would be those which under the circumstances of the individual case could have been expected in good faith. In the Court's view, the answer to the question of which measures would be reasonable and ought to be taken depends on how a reasonable creditor would have acted in the same situation. [Because of the absence of any substantial argument on this point during the proceedings, this question was not answered by the Austrian Supreme Court in greater detail.]"

13. Saidov, supra note 7.

14. Austria 14 January 2002 Oberster Gerichtshof [Supreme Court], case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/020114a3.html> [a German seller and an Austrian buyer concluded a contract for the sale of a cooling system to be specifically manufactured by the seller].

15. Switzerland 3 December 2002 Handelsgericht [Commercial Court] St. Gallen, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/021203s1.html> [the plaintiff, a buyer incorporated in Tel Aviv, Israel, ordered from the defendant, a seller, of Switzerland, a sizing machine for the production of textiles].

16. Switzerland 1 March 2002 Zivielgesetz [Civil Court] Basel, P 1997/482, para 3.7; case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/020301s1.html> [a Belgian seller and a Swiss buyer concluded a contract for the sale of soy protein products].

17. Russia 6 June 2000, Arbitration proceeding 406/1998; case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/000606r1.html> [an English buyer and a Russian seller concluded a contract for the sale of goods to be shipped to a certain port on c.i.f. terms. When the seller notified the buyer that it would not perform the contract due to an increase in tax rates which, in its view, amounted to force majeure, the buyer filed a motion for arbitral proceeding claiming damages].

18. China 17 December 1999 Rizho Intermediate People's Court, Shandong Province (Hang Tat v. Rizhao), case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/991217c1.html> [buyer, of the U.S.A., concluded a contract with sellers, of China, for the sale of a quantity of frozen shrimp].

19. Russia 24 January 2000 Arbitration proceeding 54/1999, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/000124r1.html> [a U.S. firm, the buyer, commenced proceedings against a Russian company, the seller, in connection with a contract concluded between the parties, which involved the delivery of two consignments on an FCA (free carrier) basis, in accordance with Incoterms under the contract].

20. Saidov, supra note 7.


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