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2008 UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods

Digest of Article 75 case law [reproduced with permission of UNCITRAL] [*]

[Text of article
Overview
Relation to other articles
Conditions for 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.

OVERVIEW

1. Article 75 provides that an aggrieved party may recover damages measured by 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 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]

[See also the overview comments UNCITRAL has prepared to introduce the provisions of the CISG dealing with Damages (articles 74 through 77). They discuss Relation to Other Articles, Burden of Proof, Set-off, Jurisdiction, and Place of Payment of Damages.]

Relation to other articles

2. Article 75 sets out the first of two alternative damage formulas applicable if the contract is avoided. Article 75 measures damages as the difference between the contract price and the price in a substitute transaction, while article 76 measures damages as the difference between the contract price and a current (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 resold only some of the contract goods to a third party may recover damages as to the resold 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 applying 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 further damages under article 74. In addition, 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, it has been held that an aggrieved party may choose to claim damages under article 74 instead.[8] Some decisions indicate that 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 those damages as provided in article 77. The reduction is the amount by which the loss should have been mitigated. See paragraphs 12-14 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 held 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 non-performance displaced the aggrieved party's right to recover damages under the damage provisions of the Convention.[11]

Conditions for 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 requirement 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 buyer could recover damages under article 75 without establishing that it had declared the contract avoided when the seller had made it clear that it would not perform.[15] A court has also awarded an aggrieved seller damages equivalent to those provided for in article 75 (the difference between the contract price and the lower price at which the seller resold the goods) even though the seller apparently never avoided the contract, where the seller complied with the requirements in article 88 for reselling the goods, including the requirement of notice of intention to resell.[16]

-- 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 involves the sale to some other buyer of the goods identified to the avoided contract.[17] An aggrieved buyer concludes a substitute transaction when it buys goods to replace those promised in the avoided contract.[18]

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.[19] 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.[20]

-- Substitute transaction: reasonable manner

10. An aggrieved party must conclude the substitute transaction in a reasonable manner. To enter into a "reasonable" substitute transaction, an arbitral tribunal has held, an aggrieved buyer must act as a prudent and careful businessperson who buys goods of the same kind and quality, ignoring unimportant small differences in quality.[21] A sale at market value on approximately the same freight terms was found to be a reasonable substitute sale.[22]

-- Substitute transaction: reasonable time

11. An aggrieved party must conclude the substitute transaction within a reasonable time after avoidance of the breached contract.[23] 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 by reselling shoes made for the winter season within two months where it was established that most potential buyer's had already bought winter shoes by the time the contract was avoided.[24] Resale of scrap steel within two months of the time the seller avoided the contract has also been found reasonable.[25] Another court found that an aggrieved seller who resold a printing press within six months after expiration of an additional period given the buyer to perform under article 63 had acted within a reasonable time.[26] 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.[27]

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.[28]

13. Several decisions have awarded additional damages under article 74 to compensate for incidental damages arising from the breach.[29] There will, of course, be no additional recovery if further damages are not established.[30]

14. Several decisions have reduced the aggrieved party's recovery under article 75 because that 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.[31] There is no reduction if there is no failure to mitigate.[32] 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.[33]

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.[34] 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.[35]


NOTES

* This presentation of the UNCITRAL Digest is a slightly modified version of the original UNCITRAL text at <http://www.UNCITRAL.org/pdf/english/clout/CISG_second_edition.pdf>. The following modifications were made by the Institute of International Commercial Law of the Pace University School of Law:

   -    To enhance access to contents by computer search engines, we present in html rather than pdf;
 
   -    To facilitate direct focus on aspects of the Digests of most immediate interest, we inserted linked tables of contents at the outset of most presentations;
 
   -    To support UNCITRAL's recommendation to read more on the cases reported in the Digests, we provide mouse-click access to (i) CLOUT abstracts published by UNCITRAL (and to UNILEX case abstracts and other case abstracts); and also (ii) to full-text English translations of cases with links to original texts of cases, where available, in [bracketed citations] that we have added to UNCITRAL's footnotes; and
 
   -    To enable researchers to themselves keep the case citations provided in the Digests constantly current, we have created a series of tandem documents, UNCITRAL Digest Cases + Added Cases. The new cases and other cases that are cited in these updates are coded in accordance with UNCITRAL's Thesaurus.

In addition, this presentation introduces each section of the UNCITRAL Digest with a Google search button. This is to help you access doctrine (relevant material from the over 1,200 commentaries, monographs and books on the CISG and related subjects that we present on this database) as well as the texts of the cases that UNCITRAL cites in its Digests and that we present in our updates to UNCITRAL's Digests.

1. Articles 45(1)(b) and 61(1)(b) of the Convention provide that an aggrieved buyer and an 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., [ICC International Court of Arbitration, Award 6281 of 26 August 1989 (Steel bars case)] (applying yugoslav law but also analysing article 75).

4. See [ICC International Court of Arbitration, Award 8574 of September 1996 (Metal concentrate case)] (no recovery under article 76 because the aggrieved party had entered into substitute transactions within the meaning of article 75).

5. [GERMANY Oberlandesgericht Düsseldorf 14 January 1994 (Shoes case)]. See also [ICC International Court of Arbitration, Award 8740 of October 1996 (Russian coal case)] (aggrieved buyer who was unable to establish the market price is not entitled to recover under article 76, and entitled to recover under article 75 only to the extent it had made substitute purchases); but compare [CHINA CIETAC Arbitration Award of 30 October 1991 (Roll aluminum and aluminum parts case)] (aggrieved buyer who had made purchases for only part of the contract quantity nevertheless awarded damages under article 75 for the contract quantity multiplied by the difference between the contract price and the price in the substitute transaction).

6. [GERMANY Oberlandesgericht Hamm 22 September 1992 (Frozen bacon case)] (damages calculated under article 76 rather than article 75 where the aggrieved seller resold goods for one-fourth of contract price).

7. [ICC International Court of Arbitration, Award 8574 of September 1996 (Metal concentrate case)] (recovery allowed under article 74 where the aggrieved party was not entitled to recover under article 75 because it had concluded substitute transactions without having effectively avoided contract).

8. [AUSTRIA Oberster Gerichtshof 28 April 2000 (Jewelry case)] (aggrieved party may claim damages under article 74 even if he could also claim damages under artsicles 75 or 76).

9. [AUSTRIA Oberster Gerichtshof 28 April 2000 (Jewelry case)] (under article 74 seller can recover difference between cost of acquisition and contract price); [FRANCE Cour d'appel, Grenoble 4 February 1999 (Orange juice case)] (citing article 74 but quoting from article 75) (see full text of the decision); [RUSSIA Arbitration Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Award 155/1994 of 16 March 1995 (Metallic sodium case)] (citing article 74 but determining damages as difference between contract price and price in substitute transaction). See also [ICC International Court of Arbitration, Award 7531 of 1994 (Scaffold fittings case)] (citing article 75 in support of an award of damages to aggrieved buyer for preserving and selling goods pursuant to articles 86, 87 and 88(1); buyer did not purchase substitute goods).

10. [ICC International Court of Arbitration, Award 7585 of 1992 (Foamed board machinery case)].

11. [CHINA CIETAC Arbitration Award of 1 April 1993 (Steel products case)].

12. [AUSTRIA Oberster Gerichtshof 9 March 2000 (Roofing material case)] (no declaration of avoidance); [RUSSIA Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Award 54/1999 of 24 January 2000] (no avoidance); [GERMANY Oberlandesgericht Hamburg 28 February 1997 (Iron molybdenum case)]; [GERMANY Oberlandesgericht Bamberg 13 January 1999 (Fabric case)]; [AUSTRIA Oberster Gerichtshof 6 February 1996 (Propane case)] (equivocal declaration of avoidance not effective) (see full text of the decision).

13. See [GERMANY Oberlandesgericht Naumburg 27 April 1999 (Automobile case)] (a seller who resold goods after the aggrieved buyer had declared the contract avoided was not entitled to recover damages under article 75).

14. [ICC International Court of Arbitration, Award 8574 of September 1996 (Metal concentrate case)] (purchases by aggrieved buyer before it had avoided contract did not constitute substitute transactions under article 75); [UNITED STATES Federal District Court, Northern District of New York, 9 September 1994 (Delchi Carrier, S.p.A. v. Rotorex Corp.)], affirmed [UNITED STATES Federal Court of Appeals for the Second Circuit 6 December 1995 (Delchi Carrier, S.p.A. v. Rotorex Corp.)] (substitute compressors had been ordered before breach).

15. [GERMANY Oberlandesgericht Hamburg 28 February 1997 (Iron molybdenum case)].

16. [AUSTRIA Oberlandesgericht Graz 16 September 2002 (Garments case)].

17. [AUSTRALIA Supreme Court of Queensland 17 November 2000 (Scrap steel case)] (see full text of the decision).

18. [UNITED STATES Federal District Court, Northern District of New York, 9 September 1994 (Delchi Carrier, S.p.A. v. Rotorex Corp.)], affirmed [UNITED STATES Federal Court of Appeals for the Second Circuit 6 December 1995 (Delchi Carrier, S.p.A. v. Rotorex Corp.)] (compressors ordered from another supplier before seller breached were not substitute goods under article 75).

19. [GERMANY Oberlandesgericht Hamm 22 September 1992 (Frozen bacon case)].

20. [ICC International Court of Arbitration, Award 8128 of 1995 (Chemical fertilizer case)] (higher price paid by aggrieved buyer in substitute transaction justified because of buyer's obligation to deliver goods promptly to sub-buyer).

21. [ICC International Court of Arbitration, Award 8128 of 1995 (Chemical fertilizer case)].

22. [AUSTRALIA Supreme Court of Queensland 17 November 2000 (Scrap steel case)].

23. But see [AUSTRALIA Federal Court of Adelaide 28 April 1995 (Roder v. Rosedown)] (where a seller is unable to resell goods until the breaching buyer returns them the seller has a reasonable time to resell from the time they are returned and damages should be calculated as of the date of the return) (see full text of the decision).

24. [GERMANY Oberlandesgericht Düsseldorf 14 January 1994 (Shoes case)] (avoidance on 7 August; resale on 6 and 15 October).

25. [AUSTRALIA Supreme Court of Queensland 17 November 2000 (Scrap steel case)] (see full text of the decision).

26. ITALY Corte di Appello di Milano 11 December 1998 (Printer device case) (Bielloni Castello S.p.A. v. EGO S.A.)].

27. [ICC International Court of Arbitration, Award 8574 of September 1996 (Metal concentrate case)] (reasonable time must pass after avoidance before an aggrieved buyer may purchase substitute goods). But see [SWITZERLAND Bundesgericht 15 September 2000 (FCF S.A. v. Adriafil Commerciale S.r.l.) (Egyptian cotton case)] (aggrieved buyer made reasonable substitute purchase even though it concluded the purchase promptly after avoidance).

28. See, e.g., [AUSTRALIA Supreme Court of Queensland 17 November 2000 (Scrap steel case)] (see full text of the decision); [RUSSIA Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Award 155/1994 of 16 March 1995 (Metallic sodium case)]; [GERMANY Oberlandesgericht Düsseldorf 14 January 1994 (Shoes case)]; [ICC International Court of Arbitration, Award 7585 of 1992 (Foamed board machinery case)]. But see [SWITZERLAND Handelsgericht des Kantons Aargau 26 September 1997 (Cutlery case)] (majority of judges awarded seller of custom-made cutlery ten percent of purchase price as damages, a sum which included losses incurred on the resale of the cutlery).

29. [AUSTRALIA Supreme Court of Queensland 17 November 2000 (Scrap steel case)]; [SWITZERLAND Handelsgericht des Kantons Aargau 26 September 1997 (Cutlery case)] (recovery of transportation costs) (see full text of the decision); [GERMANY Oberlandesgericht Düsseldorf 14 January 1994 (Shoes case)] (recovery of interest on bank loan); [GERMANY Landgericht Berlin 30 September 1992 (Shoes case)] (recovery of legal fees but not of sales commission that would have been paid if the buyer had performed).

30. [GERMANY Oberlandesgericht Bamberg 13 January 1999 (Fabric case)] (aggrieved buyer failed to prove additional costs were foreseeable under article 74).

31. [SPAIN Tribunal Supremo 28 January 2000 (Jute case)].

32. [AUSTRIA Oberster Gerichtshof 28 April 2000 (Jewelry case)] (see full text of the decision); [GERMANY Oberlandesgericht Düsseldorf 14 January 1994 (Shoes case)].

33. [AUSTRIA Oberster Gerichtshof 28 April 2000 (Jewelry case)] (damages recovered under article 74). See also [ITALY Corte di Appello di Milano 11 December 1998 (Printer device case) (Bielloni Castello S.p.A. v. EGO S.A.)] (evidence did not establish that aggrieved seller had lost a sale by its resale to a third party).

34. [SWITZERLAND Bundesgericht 15 September 2000 (FCF S.A. v. Adriafil Commerciale S.r.l.) (Egyptian cotton case)] (breaching party failed to indicate measures aggrieved party should have taken in mitigation). See also [SWITZERLAND Handelsgericht des Kantons Aargau 26 September 1997 (Cutlery case)] (aggrieved party has the burden of establishing loss) (see full text of the decision); [ICC International Court of Arbitration, Award 7645 of March 1995 (Crude metal case)] (under general principles of law the party claiming damages has the burden of establishing existence and amount of damages caused by the breach of the other party).

35. [SWITZERLAND Bundesgericht 15 September 2000 (FCF S.A. v. Adriafil Commerciale S.r.l.) (Egyptian cotton case)] (construing article 8 of Swiss Civil Code). See also [SWITZERLAND Bezirksgericht der Sanne 20 February 1997 (Spirits case)] (domestic law, rather than the Convention, determines how damages are to be calculated if the amount cannot be determined).


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